Australia’s unemployment rate of 3.5pc points to higher interest rates

Australia is looking down the barrel of “much higher” interest rates and rapidly rising consumer prices after the unemployment rate fell to 3.5 per cent, the lowest since August 1974.

Australia is looking down the barrel of “much higher” interest rates and rapidly rising consumer prices after it was announced that the nation’s unemployment rate has dropped to 3.5 per cent, the lowest it has been since August 1974.

“This is a genuinely shocking number,” said George Washington University economist Steven Hamilton, who is a visiting fellow at ANU.

“On the one hand it is great news that so many people are finding jobs — the rate of employment is now where it would have been had the pandemic never happened and the rate of employment continued to grow this whole time.”

“That’s really extraordinary.”

But Professor Hamilton warned that this could also be a sign of an overheated economy that is heading towards the sort of “locked-in” inflation currently being experienced in the US.

Workers at Regiment Cafe in Sydney’s CBD on Friday. Picture: NCA NewsWire / Nikki Short

On Wednesday night it was revealed that headline US inflation had risen to a new four-decade high of 9.1 per cent, with many staple grocery items rising by much more.

Professor Hamilton pointed to interest rate rises in other countries as well as a sign of things to come.

Overnight Canada’s central bank hiked rates by a full percentage point to 2.5 per cent, much higher than Australia’s 1.35 per cent.

“Countries like the US are telling us where we are heading, and we haven’t seen official inflation numbers for three or four months.”

“I think it’s going to be very bad,” when the numbers do come out in two weeks, he said.

“Interest rates will need to go up much higher, much faster.”

Commonwealth Bank economist Stephen Wu said that the rate is “below what the RBA considers to be non-accelerating” and that “given there are almost the same number of job vacancies as unemployed people it is clear businesses are facing a labour shortage.”

Unemployment is now at its lowest level since August 1974.

Bjorn Jarvis, head of labour statistics at the ABS, said: “With employment increasing by 88,000 people and unemployment falling by 54,000, the unemployment rate fell by 0.4 percentage points, to 3.5 per cent.

“This is the lowest unemployment rate since August 1974, when it was 2.7 per cent and the survey was quarterly.”

The unemployment rate continued to fall for men and women (both down 0.4 percentage points).

“The 3.4 per cent unemployment rate for women was the lowest since February 1974 and the 3.6 per cent rate for men was the lowest since May 1976,” Mr Jarvis said.

NSW Treasurer Matt Kean pointed to NSW’s unemployment rate of 3.3 per cent as a success for the state.

“NSW has done it again. Three record low unemployment rates this year despite the challenges of floods and ongoing COVID outbreaks,” Mr Kean said.

“The NSW government’s tailored support measures throughout bushfires, floods and COVID outbreaks are helping NSW achieve a jobs boom.

“The NSW labour market is in a very strong position and our record low unemployment rate of 3.3 per cent is well below the national rate.”

Originally published as Australia’s unemployment rate of 3.5pc points to higher interest rates