Business confidence rose 21 points in May to a net 10% positive, according to ANZ's latest business outlook survey.
Expected own activity, a measure of future demand, rose 6 points to net 26.6% positive. However, past activity eased slightly, with retail and construction sectors reporting a fall in activity in recent months. Agriculture and manufacturing have been more resilient.
ANZ chief economist Sharon Zollner said "these are very uncertain times for businesses. Some of the initial shock appears to have worn off, but activity indicators remain considerably lower than before the Middle East conflict broke out".
One-year-ahead inflation expectations eased from 3.81% to 3.63%, while pricing intentions were little changed. Wage intentions were also little changed in both the share of firms expecting to raise wages and the expected size of increases.
Zollner said "the gap between expected costs and expected prices remains wide, implying pressure on profit margins". She added that "costs are increasing but firms have a limited ability to recoup that through higher prices, with customers so price sensitive. The wage bill is one area where firms have some ability to limit cost increases, particularly in a soft labour market".