Australia’s jobs market is expected to give the Reserve Bank more to worry about.
Economists predict official labour force data, due to be released by the Australian Bureau of Statistics on Thursday, will show the unemployment rate held at 4.1 per cent in February.
Combined with an expected increase in employment of 20,000 jobs, it will compound the central bank’s view the jobs market is too tight and contributing to inflation, Westpac economist Pat Bustamante says.
“If it comes in as expected, the RBA will more likely than not view it as consistent with their view that capacity is constrained,” he told AAP.
The Reserve Bank board hiked interest rates for a second straight month on Tuesday, as surging oil prices caused by the Iran war fuelled fears of higher inflation.
But governor Michele Bullock made clear that it was domestic economic issues, not the overseas supply shock, that drove the decision.
“Higher petrol prices will add to inflation, but they’re not the reason for today’s decision,” she told reporters after the meeting.
“Inflation was already too high, reflecting the fact that demand is outstripping supply.”
Mr Bustamante said it was clear the bank was more concerned about the risk that the conflict will drive up inflation than the threat it will crash the economy and drive up unemployment, which the RBA must manage as part of its dual mandate.
But even though the unemployment rate is forecast to stay at a relatively low 4.1 per cent, there are signs the jobs market is starting to turn.
Instead of being driven by an uptick in hiring rates, the fall in the jobless rate from 4.4 per cent in September is due to a decline in participation, Mr Bustamante said.
If the participation rate had stayed steady, the unemployment rate would actually have risen to 4.5 per cent.
Rather than demand firming as the economy gains strength, labour supply is falling, adding to capacity pressures.
As the war in the Middle East drags on, and oil prices remain elevated, similar stagflationary symptoms could become more common across the economy.
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