The just-launched Business Outlook Scenarios Survey (BOSS) reveals businesses expect prices to rise by 2.8 per cent over the next year, down from 3.8 per cent in July. This is the first time business expectations have aligned with the RBA’s target range since the collection of data — adding to the evidence that inflation is on track to fall further.
The RBA has held the cash rate steady at 4.35 per cent since November 2023, waiting for clear signs that inflation will return to and stay within its two–three per cent target range before considering a rate cut.
Data from the Australian Bureau of Statistics (ABS) shows that underlying inflation slowed to 3.2 per cent in the December quarter of 2024, down from 3.6 per cent in the previous quarter.
Why the new data matters
One of the key indicators monitored by central banks is inflation expectations. When businesses and households anticipate lower inflation, they adjust their pricing, spending and wage decisions accordingly — helping shape actual inflation outcomes.
Over half of businesses surveyed are considering reducing staff in the coming year, and more than 85 per cent expect the RBA to cut interest rates.
According to the latest BOSS survey, business inflation expectations are closely tied to their cost outlook and pricing strategies. The January data suggests that firms — especially medium-to-large businesses and those in the service sector — expect production costs to decline along with inflation.
As a result, they predict smaller price increases for their goods and services, further reinforcing the likelihood of a broader slowdown in inflation.
What is the BOSS survey?
The BOSS survey is a monthly panel of 500 Australian businesses across various industries, sizes and states.
A key feature of the survey is its use of scenario-based forecasting, which not only captures business expectations, but also gauges their underlying perception of uncertainty. Since its pilot launch by Macquarie University in June 2024, the survey has provided insights into the broader economy, and key business decisions, including pricing and staffing.
This new set of information will be useful to academic researchers and policy makers to understand how businesses form outlooks and perceptions of uncertainty, and their potential impact on actual business decisions.
In addition to declining business inflation expectations, the January data also shows businesses see less uncertainty about future inflation.
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Meanwhile, over half of businesses surveyed are considering reducing staff in the coming year, and more than 85 per cent expect the RBA to cut interest rates.
Implication for monetary policy
Setting the cash rate is a delicate balancing act. The RBA must ease cost-of-living pressures while avoiding job losses - a challenge often described as navigating a "narrow path”.
Want to know more? For further information on the BOSS survey, contact Dr Ben Wang, pictured, Associate Professor in the Department of Economics and Centre for Risk Analytics.
Traditional economic theory suggests lowering interest rates boosts demand and employment, but stronger demand can also drive buisnesses to raise prices, potentially fuelling inflation higher.
With inflation moving closer to the RBA’s target and businesses expecting it to stay within that range, the latest signals support the case for an interest rate cut.
Dr Ben Wang is an Associate Professor in the Department of Economics and Centre for Risk Analytics.
