Australia business activity weakened in Sept - survey

SYDNEY, Oct 9 (Reuters) - Australian business conditionsweakened in September as retailers and wholesalers suffered fromslack demand, while inflationary pressures remained verysubdued, adding to the case for further cuts in interest rates.

A monthly survey of around 400 firms by National AustraliaBank found firms complaining of a high local dollar,tighter fiscal policy and softer commodity prices.

As a result the survey's main measure of business conditionsfell 3 points in September to stand at -3, some way below itslong-run average.

In contrast, the index of business confidence rose 3 pointsto stand at 0, reversing much of the fall seen the previousmonth. The two measures have been see-sawing for months with noclear trend emerging.

"The pull back in business conditions was led byparticularly heavy declines in wholesale, retail and transport &utilities," said NAB chief economist Alan Oster.

"We expect to see one more rate cut in November, providedcore inflation remains subdued, with the possibility of anotherin early 2013," he added.

The Reserve Bank of Australia (RBA) cut interest rates aquarter point to 3.25 percent last week citing a slowdown inChina, lower export prices and a high currency among reasons forthe move.

Financial markets are pricing in around a two-in-threechance of a cut to 3 percent in November, and further easing to2.75 percent or lower next year.

The survey's measure of sales dropped 6 points to -3, whilethat for profitability eased 3 points to -5. Measures of futuredemand were also weak, with the index of forward orders falling5 points to -7 in the month.

Employment was a shade softer, led by a pullback in the oncered-hot mining sector. Mining giant BHP Billiton onTuesday said it plans to cut an undisclosed number of jobs iniron ore, its biggest and most profitable business, as it triesto cope with weaker prices and higher costs.

Yet overall mining employment conditions stayed positive,suggesting miners were still hiring but at a slower pace.

Measures of inflation were benign with final product pricesrising at the slowest pace since January. Input costs alsoeased, as did the wage bill.

Official figures for consumer prices are due later inOctober and are expected to show underlying inflation remainednear the floor of the RBA's 2 to 3 percent target band in thethird quarter.

(Reporting by Wayne Cole; Editing by Lincoln Feast)

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