Unemployment is on the rise, strengthening the case that the Reserve Bank of Australia's (RBA) tightening cycle has run its course, at least for now.
The Australian Bureau of Statistics (ABS) released its latest jobs report on Thursday, revealing that the nation's jobless rate in Australia edged up to 4.5% in July, on a seasonally-adjusted basis, up from 4.4% in June. That's equal to 15,800 fewer jobs.
The participation rate fell slightly to 66.9%, down from 67% a month earlier.
By state, Victoria and Tasmania continued to have the highest levels of unemployment at 5.1%. On the opposite end of the spectrum, South Australia had the lowest levels at 4.1%, followed by New South Wales at 4.2%.
Australia's central bank delivered three back-to-back interest rate hikes earlier this year, bringing the official cash rate (OCR) to 4.35%. However, 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.
Mortgage holders and investors, meanwhile, have been on edge as they grapple with higher borrowing costs, increased costs of living, a persistent housing shortage and the new federal budget. Further rate hikes would only add to the financial pressure many are already facing.
Earlier this month, RBA Governor Michele Bullock said the bank would raise rates again if needed in order to tame inflation. On Wednesday, RBA Deputy Governor Andrew Hauser reiterated Bullock's warning while speaking at an event in Brisbane, pointing to the ongoing conflict in the Middle East, investment in artificial intelligence and weak productivity growth in Australia as potential sources of further inflationary pressure.
“If those upside risks to inflation crystallise and we don’t see inflation coming down, we will — and we will have to — raise interest rates again,” Hauser said.
The latest consumer price index (CPI) gave market players some hope though, revealing that inflation is easing, but still above the RBA's target inflationary range of 2% to 3%. The central bank has repeatedly signalled it will not begin easing monetary policy until inflation is back within the target band.
In the 12 months leading up to June, headline CPI increased 3.8%, down from 4% in May, in seasonally-adjusted terms, but also below the bank's forecast of 4%. Meanwhile, trimmed mean inflation — which many economists consider a better indicator of inflationary pressures because it strips out goods with volatile price changes — came in at 3.6%, unchanged from the year leading up to May.
The RBA is now bracing for a softer labour market, with its unemployment estimates reaching 4.8% by June 2028, where it is expected to stay for the rest of the year. That is well above the Treasury's forecast of 4.5% in 2028.
More to come
