Jobs data to help guide Reserve Bank’s May rates move
Australia’s employment market is expected to give the Reserve Bank further concern.
Economists predict that the unemployment rate will remain at 4.1 percent in February, according to the official labor force data to be announced by the Australian Bureau of Statistics on Thursday.
Westpac economist Pat Bustamante says this, along with an expected 20,000-strong increase in employment, will reinforce the central bank’s view that the job market is too tight and is contributing to inflation.
“If it comes as expected, the RBA will likely view that as consistent with their view that capacity is constrained,” he told AAP.
The Federal Reserve board raised interest rates for the second month in a row on Tuesday after rising oil prices caused by the Iran war raised fears of high inflation.
However, Governor Michele Bullock made clear that it was domestic economic problems, not an overseas supply shock, that caused this decision.
“Higher oil prices will increase inflation, but they are not the reason for today’s decision,” he told reporters after the meeting.
“Inflation was already very high, which reflects the fact that demand is outstripping supply.”
Mr Bustamante said it was clear the bank was more concerned about the risk of the conflict fueling inflation than the threat it would collapse the economy and raise unemployment, which the RBA is required to manage as part of its dual mandate.
However, although the unemployment rate is predicted to remain at a relatively low level of 4.1 percent, there are signs that the job market is starting to change.
Mr. Bustamante said the drop in the unemployment rate from 4.4 percent in September was due to a decline in participation rather than an increase in hiring rates.
If the participation rate remained constant, the unemployment rate would actually rise to 4.5 percent.
As the economy strengthens, the decrease in labor supply rather than the increase in demand increases capacity pressure.
As the war in the Middle East drags on and oil prices remain high, similar signs of stagflation may become more widespread throughout the economy.
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