According to the RBA’s chief economist, Sarah Hunter, while unemployment is projected to rise further, it is not yet sufficient to curb persistent inflationary pressures.
Recent data reveals that unemployment has climbed to 4.2 per cent as of July, a notable increase from the 3.5 per cent recorded a year earlier. This rise in unemployment, while modest, comes in the wake of historically low levels and is largely influenced by high migration and population growth, which continue to sustain a robust jobs market. The RBA’s stance is that despite these changes, the current unemployment rate still falls short of alleviating inflation concerns.
The RBA’s Governor, Michele Bullock, highlighted last month that the unexpectedly strong employment figures have led the bank to effectively dismiss the possibility of an interest rate cut before the end of the year. With the cash rate standing at 4.35 per cent, the RBA’s decision reflects a cautious approach amidst a sharp slowdown in economic growth.
Hunter elaborated that the recent increase in unemployment might not be adequate enough to address inflationary pressures, which remain above the RBA’s target range of 2 to 3 per cent. She noted that the labour market’s strength could be contributing to persistent inflation, as excess demand continues to outstrip supply in the economy.
Looking ahead, the RBA forecasts a gradual rise in the unemployment rate as employment growth is expected to decelerate relative to population growth. This means that while the job market will continue to expand, it will do so at a slower pace. Measures of under-utilisation, including the unemployment rate, are anticipated to rise incrementally before eventually stabilising as economic growth aligns more closely with the underlying trend.
In summary, despite the modest increase in unemployment, the RBA’s challenge remains to manage inflation without compromising economic stability. The resilience of the job market, combined with high migration rates, means that inflation continues to pose a significant hurdle. As the RBA navigates these complex dynamics, its ability to balance interest rates and economic growth will be critical in shaping Australia’s financial landscape in the months ahead.
The news won’t be welcome to many Australians who are struggling to cope with the cost-of-living crisis. However, the overall picture is beginning to look brighter locally and globally with numerous countries already dropping rates.
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