By Rachel Clun
Inflation figures due in less than two weeks will be the key to the Reserve Bank’s interest rate decision in August, as the country’s jobs market remains strong despite economic headwinds.
The unemployment rate rose by less than 0.1 percentage point to 4.1 per cent in June, according to the Australian Bureau of Statistics. In trend terms, unemployment has remained flat at 4 per cent for four months.
The unemployment rate rose slightly to 4.1 per cent in June.Credit: Louie Douvis
Treasurer Jim Chalmers said the strong figures were good news in tough economic times.
“This is encouraging but we also know persistent inflation globally and higher interest rates are weighing on our labour market and our economy,” he said.
Opposition employment spokesperson Michaelia Cash said the figures showed a record number of Australians were working multiple jobs to make ends meet.
“People are working harder than ever just to keep their heads above water,” she said.
Both the participation rate (66.9 per cent) and employment-to-population ratio (at 64.2 per cent) remain close to record highs recorded in November.
CreditorWatch chief economist Anneke Thompson said this was positive news for the Reserve Bank, which has been keen to ensure employment remains strong while it works to reduce inflation.
“So far, they are succeeding on the employment side, but it remains to be seen if inflation can be pushed back into the band at the current monetary policy setting,” Thompson said.
The last quarterly consumer price index figures showed inflation had eased to 3.6 per cent through the year to March, down from its December 2022 peak of 7.8 per cent.
However, the more volatile monthly inflation figures have been rising, from 3.6 per cent in the year to April to 4 per cent in the year to May.
A lift in the June-quarter inflation figures would not necessarily spook the Reserve Bank board, but economists said the strength in the jobs market would allow the central bank to lift interest rates next month if inflation was surprisingly high.
AMP deputy chief economist Diana Mousina said job vacancies and advertisements had continued to deteriorate, a leading sign that the labour market was turning, but added that it was easing slowly.
“On its own, today’s labour force release does not pressure the RBA to raise rates again,” she said.
But Mousina said there was a risk the board would lift interest rates next month by 0.25 percentage points, from 4.35 per cent currently, if the June-quarter data showed another high reading for underlying inflation.
EY senior economist Paula Gadsby said the June inflation data, out on July 31, was the key piece of information ahead of the next RBA meeting.
“If that read indicates an acceleration in underlying price pressures, a rate hike is not out of the question. Our central expectation remains that the Reserve Bank will hold the cash rate for some time yet,” she said.
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