Australian small business sales rose 7.2% year on year in the first quarter of 2026, according to Xero data covering 520,000 businesses.
The result extended the momentum seen at the end of 2025. Monthly sales growth accelerated through the quarter, from 4.6% in January to 6.0% in February and 10.9% in March.
Other measures in Xero's Small Business Insights index also strengthened. Job growth reached 3.4% year on year in the quarter, up from 2.8% in the previous quarter, while wage growth edged up to 2.7% from 2.5%.
Small businesses were paid on average in 24.1 days, little changed from 24.0 days in the December quarter, suggesting payment times remained steady even as broader activity improved.
The data showed Australian small businesses outperformed peers in the US, the UK, New Zealand and Canada during the quarter, despite pressure from higher interest rates and the early effects of a fuel shock linked to conflict in the Middle East.
Sector trends
Construction recorded the strongest sales growth among the major industries tracked, rising 10.4% year on year. Healthcare followed at 9.2%, while financial services rose 8.8%.
Transport and logistics stood out in March, with sales up 13.2% year on year. That was 8.2 percentage points higher than in February and the largest month-to-month increase among the industries in the report.
Higher fuel prices appeared to be the main driver of that jump. So far, price pressures have been concentrated in fuel rather than spread broadly across other categories, suggesting that first-quarter sales growth largely reflected stronger activity rather than inflation alone.
Hospitality workers saw the biggest wage increase over the past year, with pay up 3.5% year on year. Construction wages rose 3.3%, while transport and logistics and information, media and telecommunications lagged the national pace at 2.1% and 2.2%, respectively.
Even with stronger wage growth, pay increases remained below the headline inflation of 3.7%. That points to continued pressure on workers' real incomes, even as employers in some sectors still face tight labour conditions.
Hiring picture
Hiring also strengthened at the start of the year. Public administration led job growth at 5.6% year-on-year, followed by construction at 5.3%.
Hospitality and administrative services remained weaker, with job growth of 0.7% and 1.3%, respectively. The hospitality figures suggest higher wages alone have not been enough to resolve labour shortages in the sector.
Queensland and Western Australia led the states in sales growth, at 9.8% and 8.1% year on year. They also recorded the strongest jobs growth, at 4.1% and 4.5% respectively.
"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," Louise Southall, Economist at Xero, said.
The figures are likely to be watched closely as policymakers assess the balance between resilient demand and renewed cost pressures. Sales, employment, and wages are all relevant to interest rate decisions, and the latest data suggest that small businesses entered the year with more momentum than many expected.
"Small businesses have started 2026 in good shape, with sales, jobs and wages all growing - key metrics the RBA monitors closely for interest rate decisions. 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," said Southall.
The stronger reading does not remove risks for the months ahead. Rising fuel costs could still flow through to transport, supply chains and the broader price of goods and services, especially if geopolitical tensions persist.
"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," said Angad Soin, Managing Director ANZ and Global Chief Strategy Officer at Xero.