Australian small business sales rose 7.2% year-on-year in Q1 2026, despite back-to-back rate hikes and a fuel crisis, Xero data shows.
What’s happening: New data from Xero’s Small Business Insights report, drawing data from 520,000 Australian small businesses, shows the sector maintained strong momentum in Q1 2026 with sales rising 7.2% year-on-year.
Why this matters: The results arrive against a backdrop of back-to-back RBA interest rate hikes in February and March, and the early impact of a fuel crisis driven by conflict in the Middle East.
Back-to-back interest rate hikes. A fuel crisis triggered by conflict in the Middle East. Global supply chain disruption. For Australian small businesses, the first quarter of 2026 came loaded with reasons to slow down. They did not.
New data from Xero’s Small Business Insights report, which analyses anonymised and aggregated accounting data from 520,000 Australian small businesses, shows sales rose 7.2% year-on-year in the three months to March 2026, confirming that last quarter’s two-year high was not a one-off. The momentum built as the quarter progressed, with sales up 4.6% year-on-year in January, 6.0% in February, and surging 10.9% in March. Australian small businesses also outperformed their peers in the US, the UK, New Zealand, and Canada across the same period.
Jobs and wages moved in the same direction. Employment grew 3.4% year-on-year in the March quarter, up from 2.8% in the December quarter. Wage growth rose to 2.7% year-on-year, up from 2.5% the previous quarter and edging closer to the historical average of 2.9%, though still behind headline inflation of 3.7%. Payment times held steady, with small businesses paid on average in 24.1 days, roughly in line with the 24.0 days recorded in the December quarter.
The strongest industries for sales growth were construction at 10.4% year-on-year, healthcare at 9.2%, and financial services at 8.8%. By state, Queensland led the country with sales growth of 9.8% year-on-year, followed by Western Australia at 8.1%. On jobs, Western Australia was the top performer at 4.5% year-on-year, with Queensland close behind at 4.1%, continuing WA’s country-leading economic and population growth from 2025. Public administration led jobs growth nationally at 5.6% year-on-year, with construction again a strong performer at 5.3%. Hospitality and administrative services remained the softest industries for hiring growth.
Xero Economist Louise Southall said the results reflect genuine activity rather than price-driven inflation, with one important exception. “Small businesses have started 2026 in good shape, with sales, jobs and wages all growing. Xero’s data is the first insight into how the conflict in the Middle East is impacting small businesses, and so far it hasn’t been as damaging as many feared, despite Australia being one of the countries most reliant on Middle Eastern oil among the markets we track. Importantly, this strength appears to reflect genuine increases in activity rather than price-driven growth, with cost pressures so far largely confined to fuel.”
That exception is worth watching. The transport and logistics sector recorded sales growth of 13.2% year-on-year in March, up 8.2 percentage points from February and the largest month-to-month sales rise across all industries tracked in the report. Southall identified the sector as a potential early warning sign. “We can see that small businesses that provide passenger and freight services have already been impacted by higher fuel prices. We are now watching closely to see if and how this inflationary impact bleeds into small businesses providing other goods and services in the coming months and how higher prices could affect overall business activity.”
Ahead of the Australian Bureau of Statistics’ household spending release, Xero’s data offers an early proxy for consumer spending and suggests that price increases to date are largely confined to fuel rather than broad-based. That distinction matters for interpreting the March quarter result. Sales growth, in most industries, appears to reflect a genuine improvement in activity.
Wages are a more complicated picture. The 2.7% year-on-year increase remains below headline inflation of 3.7%, meaning real wage growth is still negative for most workers. Hospitality workers recorded the largest pay increase over the past year at 3.5% year-on-year, though Southall noted this had little impact attracting new workers to the sector, which continues to experience a skills shortage. Construction wages also grew strongly at 3.3% year-on-year, while transport and logistics and information, media and telecommunications lagged at 2.1% and 2.2% respectively.
Angad Soin, Managing Director ANZ and Global Chief Strategy Officer at Xero, said the strong results come with a caution attached. “The strong XSBI results are good news for small businesses but challenges are still to come. We expect higher fuel costs to increasingly flow through to the price of goods and services across industries in the coming months. For small businesses, it’s an important time to think about your strategy to navigate the ongoing uncertainty. Work with your advisor, pressure test your cash flow, and make sure you have clear visibility of your costs in real time.”
The next test is close. A potential RBA rate decision in May, combined with the unresolved fuel situation in the Middle East, could shift the picture quickly. For now, Australian small businesses have entered 2026 with more resilience than the conditions warranted. Whether that holds is the question the next quarter will answer.
The data comes from the latest Xero Small Business Insights (XSBI) report
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