Business investment has been quite restrained over the past couple of years but is about to pick up according to the plans businesses supply to the ABS’s Capex Survey. This is not surprising given the relatively healthy profit situation, the high level of business confidence and the expected growth in spending.
These more buoyant conditions may also encourage businesses to attempt to rebuild profit margins, which will be a factor underpinning inflation over the next year or so. Thus, we believe that if monetary policy maintained its present stance for too much longer, there is little risk of a serious slowdown, but a high risk that the economy in time would overheat.