Australia’s jobless rate steady with more in full-time work
Updated ,first published
Home borrowers could face five more rate hikes if the war against Iran is not resolved quickly, new economic analysis reveals as the full extent of the financial hit to consumers from rising oil prices emerges.
Modeling published by Oxford Economics Australia on Thursday shows that ending the war by May will see headline inflation rise to 3.7 per cent by the middle of this year and remain high next year.
That alone could force the RBA to raise official interest rates to 4.35 percent when it meets on May 4-5, said Harry Murphy Cruise, head of economic research at Oxford Economics Australia.
“The Central Bank needs to do more to cushion the inflation shock,” he said.
Murphy Cruise said if the Federal Reserve raises interest rates at its next meeting, it will likely keep them steady for a while.
But if the war continues into September, causing oil to rise above $150 a barrel, Australia and most of its major trading partners will fall into recession.
Australia’s hardest-hit regions will be Western Australia, whose economy is expected to contract by 2.6 per cent, followed by the Northern Territory (down 2.5 per cent), South Australia (2.4 per cent) and Queensland (2.3 per cent).
All four are heavily dependent on diesel fuel for significant parts of their economies.
Headline inflation will approach 6 percent, forcing the Central Bank to raise the cash interest rate to 5.5 percent. In the case of a $600,000 mortgage, monthly repayments would increase by $500 from where they are today.
Writing for this imprint on Thursday, prominent independent economist Saul Eslake warned that, on top of the huge rise in fuel prices caused by the war in Iran, it would hurt the national economy if the RBA raises interest rates at next month’s meeting.
“Raising interest rates in response to the first-round impact of higher fuel prices on inflation would double and increase the risk of recession,” he said.
Household spending data compiled by the Commonwealth Bank confirmed the spending hit from the rise in oil prices.
It was observed that expenditures increased by 2.9 percent in March, while transportation expenditures increased by 22.3 percent.
Belinda Allen, the bank’s Australian economics chief, said spending would likely fall by April.
Finance Minister Jim Chalmers, who was in Washington for International Monetary Fund talks, said new figures showing unemployment remained stable at 4.3 percent in March confirmed that the economy entered the current crisis in a good position.
The country’s job market withstood the initial blow of the war in Iran; Unemployment remained stable at 4.3 percent until March.
Figures released by the Australian Bureau of Statistics this morning showed 52,500 full-time jobs were created last month, offset by a 34,700 drop in part-time positions.
The unemployment rate would have increased were it not for a 0.1 point drop in the participation rate, which measures the number of people working or looking for work.
In NSW, the country’s largest labor market, unemployment increased by 0.2 points to 4.3 percent, while in Victoria it increased by 0.1 points to 4.8 percent.
In Queensland, there was a sharp decline of 0.7 percentage points to 3.7 per cent, the country’s lowest unemployment rate, while there was a similar increase in the ACT, where unemployment jumped to 4.2 per cent.
Chalmers said the figures confirm that the country has strong economic fundamentals.
Shane Wright is senior economic correspondent for The Age and The Sydney Morning Herald.Connect with: X or email.
