The economy is starting to lose steam as business conditions ease for the third month in a row.
The eight-point decline in business conditions in December as sampled in NAB's monthly survey followed a more moderate two-point decline in November.
All three sub-components - trading condition, profitability and employment - fell over the month but from elevated peaks, with the overall business conditions score still firmly in positive territory.
Business confidence ticked up a little but remained in negative territory after sinking below this threshold in November.
Rising interest rates and gloomy economic prospects have been weighing on confidence in the business community but it's taken a while for actual conditions to start unravelling.
Forward indicators also eased, with forward orders losing two points and capacity utilisation easing by around one point from extremely tight levels.
NAB economist Alan Oster said the easing leading indicators suggested further weakening in conditions to come.
"What you are seeing is a general slowing in activity, so I wouldn't panic about it, but the direction is pretty obvious as to which way it is going," Mr Oster said.
The survey also revealed some notable slowdowns in industries such as mining, which experienced slowing profitability due to easing commodity prices.
But slowing price and cost growth suggests inflation has passed its peak, with labour costs slowing to 2 per cent from 2.8 per cent.
Mr Oster said costs were still elevated but suggested core inflation had already peaked on a quarterly basis.
NAB expects to see core inflation hit 6.6 per cent annually and headline inflation 7.6 per cent when the national statistics bureau releases its consumer price index data on Wednesday.
Consumers are also feeling less optimistic ahead of the December quarter inflation figures due this week.
Sentiment as measured by ANZ and Roy Morgan fell 1.8 points to 85.9, following two weeks of above-87 readings to start the year.
The subindices showed softening confidence in both consumers' existing and future financial circumstances.
Weekly confidence still remains well below long-run averages as sky-high inflation and interest rate increases keep the index in depressed territory.
ANZ senior economist Adelaide Timbrell said this week's inflation figures and the upcoming February cash rate decision would keep weighing on consumers in the weeks to come.
The banks' economists expect another interest rate hike when the Reserve Bank board meets for the first time this year.