Jobs results means RBA may have more work to do

Reserve Bank of Australia Governor Michele Bullock. Picture: NCA NewsWire / Jeremy Piper

Is it possible to have unemployment back down near 50-year lows and still bring inflation back under control with higher interest rates?

We might be about to find out.

Hot on the heels of the good news of the jobless rate dropping back to 3.7 per cent in February, from 4.1 per cent, comes the bad news that the Reserve Bank might have more work to do.

After holding rates at 4.35 per cent on Tuesday, the cautionary words from RBA governor Michelle Bullock and her board seem especially wise.

“The board believes the risks to the outlook are finely balanced and that it’s too soon to rule anything in or out,” Ms Bullock said.

Spinning this all will be a difficult job for Labor, which obviously has to be officially happy about the remarkable resilience of Australia’s labour market in the face of 13 interest rate hikes.

Jim Chalmers quickly hailed the “remarkable result”.

“This means a trifecta of moderating inflation, growing real wages and lower unemployment under Labor,” the Treasurer said.

But Anthony Albanese’s re-election chances will take a blow if this remarkable month of jobs growth marks a new trend, and the RBA board feels it feels it has to keep the cash rate at a 12-year high, or, worse, has to restart hikes in 2023.

Employment Minister Tony Burke told reporters on Thursday it wasn’t a question of whether we could get inflation back under control with an unemployment rate with a three in front of it: it was a fact.

Just look at the past year, he said.

“It’s actually the story of the statistics for most of the life of this government,” Mr Burke said.

“We need to get to the point where we can do better than saying the path to prosperity is high unemployment and low wages.”

Slowing growth, low unemployment, high wages, and falling inflation that paves the way for lower interest rates?

That would be an extraordinary outcome. And not one Bullock is anticipating.

“I think the unemployment rate is something that is mechanically going to rise as the economy slows,” she said earlier this week.

Investors see what Thursday’s jobs figures “mechanically” imply: at best, delayed rate cuts.

Economists concur.

After being on a high post overnight news the US Federal Reserve still plans to cut rates this year, the ASX sold off on the late morning data from the Australian Bureau of Statistics.

The Aussie dollar pushed higher against the greenback.

The early mail from economists is that the 116,000 jobs created in February (nearly triple what they had collectively expected) and the extraordinary fall in the unemployment rate is a “blip”, and reflects a flood of people who had been waiting for summer to end to come back to work.

They may well be right; but still, some blip.