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The chance of another interest rate hike next month has increased after the number of people in jobs rose beyond 14 million for the first time, taking the unemployment rate down to 3.6 per cent in May.
The jobless figures came as Reserve Bank research showed supply pressures were responsible for about half the current high inflation rate, which peaked around 8 per cent in December and has driven the bank’s 12 increases in the official cash rate over the past 13 months, to 4.1 per cent.
There are more than 14 million employed people in Australia.Credit: Louie Douvis
Figures from the Australian Bureau of Statistics show an additional 76,000 people gained work last month – nearly all of them in NSW and Victoria – helping push the employment-to-population ratio up by 0.2 percentage points to a record high of 64.5 per cent.
ABS head of labour statistics Bjorn Jarvis said the participation rate for women also rose to a record of 62.7 per cent, while the participation rate for men remained at 71.2 per cent.
“Looking across the range of indicators – strong growth in hours worked, the elevated employment-to-population ratio and participation rate, along with the low unemployment and underemployment rates – they all point to a continuing tight labour market,” Jarvis said.
Callam Pickering, Asia Pacific economist at jobs site Indeed, said the labour market would probably remain strong in the near term, increasing the likelihood of another rate rise.
“Australia’s job vacancy rate is 2.8 per cent, which is still around twice as high as was considered normal before the pandemic,” he said.
“In the current jobs market, jobseekers are still spoiled for choice and that simply isn’t consistent with a spike in the unemployment rate.
“Australians should brace themselves for further rate hikes.”
Over the past year, Pickering said employment had risen by 466,000 people – a huge amount given the already low rate of unemployment.
Betashares chief economist David Bassanese agreed the labour market remained “red hot” and said unless inflation data and retail sales figures were soft later this month, the Reserve Bank would probably lift interest rates again in July.
“Recent commentary suggests the RBA has lost patience with the stubbornly strong economy and lingering inflationary pressures and is determined to ensure a decent slowing in economic growth,” Bassanese said.
“It’s a case of no more Mr Nice Guy – the RBA wants to inflict some pain on the economy to prick the bubble of complacency around ongoing wage and price pressures.”
The RBA research showed price pressures were coming from an increase in the amount of goods and services people and businesses wanted to buy, as well as supply factors including ongoing disruptions stemming from the COVID-19 pandemic, Russia’s invasion of Ukraine and flooding on the east coast early last year.
The report found about half the inflation in the year to March 2023 came from supply-side factors while demand factors were responsible for about a third.
“The contribution of supply-side factors to inflation peaked at around 4.25 percentage points over the year, and contributed 3.5 percentage points over the year to March 2023,” the report found. Inflation in the year to March was 7 per cent.
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