Australia's business conditions edged down one point in March, while confidence gained a point and cost pressures softened further, survey results from NAB showed on Tuesday.

The business conditions index fell to 9 in March from 10 in the previous month. Meanwhile, the business confidence indicator rose to 1 from zero in February.

Conditions remained a little above average and confidence a little below average for the better part of a year.

NAB Chief Economist Alan Oster said this fundamentally indicates that firms have continued to be a bit concerned about the outlook even as the economy has remained resilient.

"At some point, we have to expect these two headline measures to come back into better balance, either because firms' concerns are allayed and the outlook improves, or because the economy slows further - and of course we hope it will be the former rather than the latter," said Oster.

Within business conditions, trading conditions and employment remained broadly unchanged, while profitability dropped four points. The survey showed that forward orders gained three points to -1 largely due to some improvement in retail. Capex was steady at +7, while the capacity utilization rate eased to 83.2 percent from 83.4 percent.

The ongoing gradual easing in capacity utilization indicates that supply and demand are coming into better balance as we move further from the pandemic period and border closures and monetary policy works to slow the economy, noted Oster.

Further, labor cost growth slowed to 1.6 percent and purchase cost growth weakened to 1.4 percent. Likewise, product prices climbed at a slower pace of 0.7 percent and retail price growth edged down to 1.3 percent. Recreation and personal services prices also rose at a weaker pace of 0.9 percent.

"…progress on bringing inflation back to target will be gradual from here, and we expect that to be further reinforced by the Q1 CPI result later in April," Oster said.

By industry, there were positive signs for retail and construction as both reported improvement in confidence and conditions in March.

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