Unemployment figures stoke inflation fears
Updated ,first published
A surprise fall in Australia’s unemployment rate has led markets to double down on the odds that the Reserve Bank will raise official interest rates next month, as some economists warn that a tight employment market is fueling inflation.
On Thursday, the ABS said the economy created 65,200 jobs in December, much stronger growth than expected, while the unemployment rate fell from 4.3 percent to 4.1 percent.
While money markets increased the implied probability of an interest rate increase next month to over 50 percent after the statement, some economists argued that the figures strengthened the claim that the RBA would start 2026 by increasing the cash interest rate from 3.6 percent to 3.85 percent.
The ASX 200 lost some of its early gains but was still up 0.7 per cent at 2.20pm AEDT.
Investment bank UBS changed its forecast in response to the data; Economist George Tharenou said the figures were the latest sign that Australia’s labor market was tightening rather than loosening. A tighter labor market tends to fuel higher inflation, which is currently outside the RBA’s target range.
“For the RBA, the labor market still needs to ease to reduce pressure on inflation and provide confidence to achieve the CPI target,” Tharenou said.
AMP deputy chief economist Diana Mousina said the likelihood of an implied rise in official interest rates in February rose from 26 per cent to 56 per cent after the figures were published. But Mousina said AMP believes the central bank is more likely to keep interest rates steady in the near future.
Chancellor of the Exchequer Jim Chalmers welcomed the jobs figures as evidence that Labour’s economic strategy was working.
“Our three big economic priorities for this year are inflation, productivity and addressing global uncertainty, and our resilient labor market gives us a strong foundation to build on the progress we have already made,” he said.
On the share market, the ASX200 index rose 65 points, or 0.7 per cent, to 8847.9, with nine of 11 industrial sectors in positive territory. The rise followed an overnight rally on Wall Street after Trump thwarted his threat to impose tariffs on several European countries over their opposition to a US takeover of Greenland, saying he had “a framework for a future agreement” on Arctic security.
Financial stocks rose at the open and received further support from employment figures; Commonwealth Bank (up 1.6 per cent), Westpac (up 1.1 per cent), National Australia Bank (up 2.6 per cent) and ANZ Bank (up 0.6 per cent) were sharply higher in afternoon trade.
Among miners, Rio Tinto gained 1.1 percent, while BHP lost 0.5 percent. Fortescue fell 4.4 percent after it said it shipped a record amount of iron ore in the six months to December 31. Gold miners retreated; Northern Star fell 2.1 percent and Evolution Mining fell 0.8 percent.
Energy stocks rose as oil prices strengthened as traders evaluated US President Donald Trump’s statement that the US had reached a “framework” for a deal on Greenland. While Woodside Energy increased by 2.7 percent, Santos increased its production by 5 percent in the fourth quarter, increasing by 4.1 percent.
On Wall Street, the S&P 500 rose 1.2 percent after Trump said the deal “if completed, would be a great deal for the United States and its allies in the North Atlantic region.” The announcement triggered a spike in the stock market, which was consoled earlier in the day after Trump toned down his rhetoric and told business and government leaders in Europe that he would not use force to take away the “ice floe.”
The easing has helped the S&P 500 recover just over half of its 2.1 percent decline from the previous day and move closer to its all-time high earlier this month. The Dow Jones Industrial Average rose 588 points, or 1.2 percent, and the Nasdaq composite rose 1.2 percent.
with AP
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Clancy Yeates is deputy business editor. He covered banking and financial services and was previously a national business correspondent in the Canberra bureau.Connect with: excitement or email.
