Australian business conditions remained steady in June, with cost pressures easing following a U.S.-Iran peace deal. However, renewed Middle East tensions have since sent oil prices higher, prompting concerns about future inflation and potential further interest rate hikes by the Reserve Bank of Australia.
The steady business conditions and easing price pressures offer some relief from inflation concerns, but renewed geopolitical tensions in the Middle East and rising oil prices pose a significant risk to future inflation and could prompt further interest rate hikes by the Reserve Bank of Australia.
Australian business conditions held steady in June, with cost pressures easing following a U.S.-Iran peace deal that temporarily eased global energy concerns. The National Australia Bank's (NAB) survey showed its index of business conditions remained at +3 for the third consecutive month. Business confidence also saw an improvement, rising to -5 from a deeply pessimistic -14 in May.
The survey indicated that product price growth eased back to its February level in June, and retail prices declined for the first time in seven years. NAB noted that these results are consistent with a slowing in activity growth but suggest the impact of the Middle East conflict on activity and prices was less severe than feared.
However, tensions in the Gulf have recently escalated, with renewed U.S. military strikes on Iran and the reinstatement of a blockade on shipping via the Strait of Hormuz. This development sent Brent crude prices up 2% to $85 a barrel, their highest point since mid-June.
The Reserve Bank of Australia has implemented three interest rate hikes this year, bringing the policy rate to 4.35% in an effort to combat global energy price shocks. While the central bank held policy steady in June, it warned that further tightening could not be ruled out.