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Australia business conditions index dropped by 1 point to +6, just below its long-run average, following a dip in sales and profit indices, even as cost pressures and price growth measures seem to re-accelerate, a survey by National Australia Bank (NAB) revealed Tuesday.

In addition, as the business confidence index fell 5 points to -3 index points in May from April, NAB chief economist Alan Oster said these were mixed signals for the Reserve Bank of Australia (RBA) regarding growth and inflation, Reuters reported.

"Overall, the message here is a mixed one for the RBA," said Alan Oster, "There are warning signs on the outlook for growth but at the same time reasons to be very wary about the inflation outlook, and we expect the RBA to keep rates on hold for some time yet as they navigate through these contrasting risks."

Quarterly growth in retail prices rose to 1.6% from 1.0%, labor costs and purchasing costs also picked up to 2.3% and 1.9%, from 1.5% and 1.3%. Cost pressures and price growth measures may have re-accelerated in May, Oster stated.

In May, the RBA had kept the interest rates at 4.35% for the fourth time, maintaining that it would remain alert on inflation risks.

"We have been wary for some time that the path of inflation from here is likely to be gradual and uneven, and the survey results really reinforce this message," said Oster.

According to the NAB survey, despite the dip in retail sales growth in May, capacity utilization was high and companies were recruiting, Market Watch reported.

"While growth has slowed, the process of bringing supply and demand back into balance remains incomplete, reinforcing our expectation that inflation will continue to moderate only gradually from here," Oster said.

As price indicators showed an upward trend, it added to the fear that the inflation rate was increasing. The survey results indicate that the RBA may have to increase interest rates if it has to control inflation.