CANBERRA, AAP – The strong rebound in confidence among small businesses seen in late 2021 proved short-lived as the impact of the Omicron COVID-19 variant and rising costs took their toll.

National Australia Bank’s small and medium enterprise business survey for the March quarter showed its confidence index dropped six points to nine index points, softening across firms of all sizes.

The SME business conditions index also eased, down five points at six points.

“Unfortunately, conditions remained very weak for SMEs in the hospitality sector, which has continued to face disruptions from the pandemic,” NAB chief economist Alan Oster said.

“SMEs in the property and construction sectors also saw conditions slip in the quarter, which could reflect a range of factors impacting the property market, including Omicron as well as slowing house price growth.”

Costs also remained elevated with labour and materials availability continuing to be a constraint for a large share of firms.

“This is translating to price increases,” Mr Oster said.

“Still, our expectation is for the economy to continue to strengthen over coming months which should help SMEs to recover from the disruptions earlier in the year.”

Treasurer Josh Frydenberg points to the International Monetary Fund’s latest world economic outlook released this week to highlight Australia’s positive outlook.

“It upgraded Australia’s economic outlook and it downgraded the global economic outlook,” Mr Frydenberg told reporters in Sydney.

“Australia has outperformed all major advanced economies through this pandemic.”

Still, crucial inflation figures for the March quarter are released next week, which will likely determine the timing of an increase in the cash rate by the Reserve Bank of Australia.

Commonwealth Bank group economists are expecting the annual rate of the consumer price index to surge to 4.3 per cent, the fastest pace since September 2008, and up from 3.5 per cent as of the December quarter.

The more interest rate sensitive underlying measure of inflation is also expected to jump to 3.4 per cent from 2.6 per cent, well above the RBA’s two to three per cent target.

“Petrol prices and housing purchase costs are key influences, but the Reserve Bank will be interested about whether price pressures are more broadly based,” Commonwealth Securities chief economist Craig James said.

At this stage, economists are expecting the RBA to wait until its June board meeting before lifting the cash rate from its record low 0.1 per cent so that it can also see wage growth data for the March quarter due on May 18.

“The RBA have made the point that interest rates won’t stay at those emergency levels forever,” Labor’s election campaign spokesman Jason Clare told reporters in Sydney.

“I think the key point on inflation is that those numbers show that everything is going up except people’s wages.”