A recent jump in the unemployment rate took most economists by surprise but not the Reserve Bank, its governor says.
Tightness in the labour market was a key concern of Australia’s central bank as standing in the way of more rate cuts, but conditions were easing in line with expectations, Michele Bullock said in a speech to the Anika Foundation.
Recent figures released by the Australian Bureau of Statistics showed joblessness surged from 4.1 per cent to 4.3 per cent in June, despite a consensus of economists predicting the rate to remain unchanged.
“Some of the coverage of the latest data suggested this was a shock – but the outcome for the June quarter was in line with the forecast we released in May,” Ms Bullock said on Thursday.
“That on its own suggests that the labour market moved a little further towards balance, as we were anticipating.”
Uncertainty remains over the RBA’s estimate of full employment, being its estimate of the lowest rate of unemployment that can be achieved without contributing to inflation.
The bank estimates this figure is around 4.5 per cent, meaning the labour market would still be out of balance even after the recent jump.
But in its May economic update, the RBA noted labour market conditions could be less tight than previously thought.
“The low rate of job switching may imply less upward pressure on wage growth than otherwise,” Ms Bullock said.
“Nevertheless, the risks we highlighted in May remain.”
Ms Bullock reiterated the RBA’s gradual monetary tightening in recent years was aimed at getting inflation under control without causing unemployment to rise excessively.
While not a major driver of inflation, a post-pandemic surge of international students did contribute to rents spiking, a report published by RBA researchers on Thursday found.
Large swings in foreign student numbers, such as during the COVID-19 pandemic, have a particularly strong effect on sectors such as housing where supply is constrained.
The international student population jumped from 357,919 in 2022 to 608,262 at the end of the 2024 financial year following a drop in enrolments during the pandemic, according to research from conservative think tank the Institute of Public Affairs.
As a “back-of-the-envelope” metric, every 100,000 additional international students in Australia would increase rents by 0.5 per cent compared to the counterfactual, the RBA study said.
That meant rents grew about 1.25 per cent faster than they otherwise would have if the international student population had not grown by 250,000 from 2022 to 2024.
The effect might have been greater than that, given the especially tight rental market during that period, with the vacancy hitting a record low of 0.7 per cent in February 2024, according to Domain.
But it’s still a drop in the bucket compared to the overall growth in rents, which have jumped more than 40 per cent in the past five years to reach a national average of $665 per week, according to property research firm Cotality.
The RBA report found the rise in international students likely only accounted for “a small share of the rise in rents since the onset of the pandemic, with much of the rise in advertised rents occurring before borders were reopened”.
“The increase in international students was just one of many other forces at play in this time that drove demand above supply in the economy, and hence higher inflation,” the authors said.
“For instance, supply-side factors were the biggest driver of the increase in inflation in 2022 and 2023, while strong domestic demand arising from supportive fiscal and monetary policy also played an important role.”
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