Unemployment continues to rise Down Under, further strengthening the case that the Reserve Bank of Australia's (RBA) will likely raise rates later this month.
The Australian Bureau of Statistics (ABS) released its latest jobs report on Thursday, revealing that unemployment in Australia was 4.6% in August, up from 4.5% in July, on a seasonally-adjusted basis.
Meanwhile, the nation's participation rate also rose to 67.1% in August, up from 66.9% the month before.
"The data suggests the labour market continues to gradually loosen, but mainly from higher participation amid cost-of-living pressures," said Ashwin Clarke, senior economist at Commonwealth Bank of Australia (CBA).
"The unemployment rate is now tracking slightly higher than both we and the RBA expected. But this is unlikely to materially change the discussion at the monetary policy meeting," the economist continued, adding that CBA continues to forecast a 25 basis point at the September meeting. "The economy is slowing and we expect the labour market to continue to loosen from here, which we judge is necessary to get inflation back to target in a timely fashion."
By state, Victoria continued to have the highest unemployment rate at 5.2%, followed by Tasmania at 5% and South Australia at 4.6%. Queensland and Western Australia both had rates of 4.5%, while New South Wales had the lowest unemployment rate at 4.3%.
The latest labour market data is an important factor in assessing the direction of monetary policy.
Australia's central bank delivered three back-to-back interest rate hikes earlier this year, bringing the official cash rate (OCR) to 4.35%. Policymakers left rates unchanged at both the June and August meetings, saying they wanted additional time to gauge how previous increases were affecting economic activity before deciding on their next move.
But by September, market chatter began to intensify that additional rate hikes were coming before year's end. More than 90% of futures placed the probability of a rate hike on the September meeting while all four of the Big Four banks forecasted additional rate hikes in September. The consensus was driven by recent comments from the RBA’s leadership team that signalled increasing concern over upside risks to inflation. In the case of ANZ, the lender anticipates rate hikes at both the September and November meetings on monetary policy.
August's job report only adds fuel to the fire.
The RBA has been under increasing pressure to bring inflation back within the target band of 2% to 3%. While unemployment is just one metric used by the RBA to determine the direction of monetary policy, July's consumer price index didn't do much to tame market fears. The latest print revealed that inflation, while easing slightly, is still above the target, with headline CPI coming in at 3.5% and trimmed mean at 3.6%.
The next CPI reading will not be released until after September’s meeting, leaving July’s inflation data as the latest reading available to the RBA.
Meanwhile, another interest rate rise would further reduce borrowing capacity for mortgage holders and investors nationwide, adding to the financial pressure many are already facing amid elevated living costs, higher insurance premiums, new tax laws introduced by the updated federal budget and continued global uncertainty.
The RBA's next meeting on monetary policy is scheduled for the 28 and 29 of September.
