Falling interest rates helped to lift business confidence further in October. Firms also reported a modest improvement in their current performance, and inflation indicators were mixed.
Key results (October 2024)
- Business confidence: 65.7 (Prev: 60.9)
- Expectations for own trading activity: 45.9 (Prev: 45.3)
- Activity vs same month one year ago: -10.5 (Prev: -18.5)
- Inflation expectations: 2.83% (Prev: 2.92%)
- Pricing intentions: 44.2 (Prev: 42.8)
General business sentiment rose 5 points in October to 65.7, setting another 10-year high. Firms’ expectations about their own prospects were up only slightly, though there were solid gains for the specific questions about expected hiring, investment and profits.
The surge in confidence in recent months has followed the Reserve Bank’s shift in stance – from warning about the need for interest rates to remain high for an extended period, to delivering 75bp of OCR cuts with the likelihood of more to come.
But while businesses are feeling more optimistic about the outlook for the year ahead, that’s still coming from a weak starting point. A net 10.5% of firms said that their activity was down compared to a year ago – a modest improvement from the net 18.5% in September.
The indicators of price pressures were mixed. Firms’ expectations for inflation in the year ahead ticked down from 2.9% to 2.8%. The September quarter CPI was released mid-October, so likely pre-dated many of the responses to this survey – we may see a more decisive move lower in this measure next month.
In contrast, firms’ own pricing intentions ticked up in October, as they have done for the last four months. That’s not obviously driven by cost pressures – firms’ cost expectations remain elevated compared to pre-Covid levels, but have been drifting lower. So perhaps firms believe that an improving economy will help to restore their pricing power which has been eroded in recent times. We’ll be keeping an eye on how this resolves.
