Economic Indicators Overview

The price indicator for purchase costs rose by only 1.1% this quarter, marking the slowest growth since 2021. Retail price growth also dropped to 0.5%, and labor costs decreased from 1.9% to 1.5%. This data signals positive trends in various sectors of the economy. While the drop in business confidence to 4 may seem concerning, the details tell a different story for Australia. Business conditions improved to a long-term average of 7, indicating that companies are performing better than their feelings suggest. We should pay more attention to the concrete data rather than just the headline sentiment. The most important takeaway is the notable decline in inflation indicators from the survey. Purchase costs, retail prices, and labor costs are all growing at their slowest rates since 2021. This aligns with the official Q2 2025 Consumer Price Index (CPI) data, which showed inflation falling to 3.1%, providing the Reserve Bank of Australia (RBA) some much-needed flexibility. Given this cooling inflation, coupled with a strong economy, it seems less likely that the RBA will raise rates further. We should consider positions in interest rate futures that would benefit from a more cautious RBA in the coming months. The chances of a rate cut before mid-2026 have significantly increased compared to last week.

Forward-Looking Economic Strength

Looking ahead, the real strength is in the forward-looking parts of the report. For the first time in two years, forward orders are positive, and the employment index has rebounded to +6. This data matches the recent findings from the Australian Bureau of Statistics, which showed that the unemployment rate stayed steady at 4.0% in August 2025, defying expectations for a rise. This “soft landing”—where inflation eases without harming economic activity—is very encouraging for stocks. A less aggressive RBA will lower bond yields, increasing the future value of company earnings. We should think about buying call options on the ASX 200, as the index is likely to adjust based on this positive outlook. In the short term, the Australian dollar may face downward pressure. With the RBA halting rate hikes while other central banks, like the U.S. Federal Reserve, remain cautious, a weaker currency is probable. We should expect the AUD/USD exchange rate to weaken as interest rate differences shift against it. Create your live VT Markets account and start trading now.

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