MNI INTERVIEW: Australia's Jobless Rate Challenges Dovish RBA

Australia’s unemployment and labour underutilisation rates have fallen into the range which the Reserve Bank of Australia considers to be full employment with job creation at a level that an Australia Bureau of Statistics official said approaches a record low.

December’s unemployment rate dropped to 4.2% from November’s 4.6% as the economy created an estimated 64,800 jobs, two third of them full time and many of them for younger workers. The underutilization rate fell 1.3 percentage points to 10.8%.

The data sets the stage for the February RBA policy review to take a harder look at QE, see: MNI BRIEF: RBA Watching Fresh Data For Feb QE Decision.

Bjorn Jarvis, the head of labour market data for the Australian Bureau of Statistics, told MNI that because the participation rate was unchanged at 66.1% over November and December it was possible to make a direct comparison between the two months, showing the strength of the recovery.

“This is really close to being an all-time low since we began reporting this data on a monthly basis in 1978,” Jarvis said. "Given the recovery last month in the split between full time and part time work, the market is more in step now what we usually see."

WAGES AND INFLATION

Unemployment was at 4.0% in December 2008, just before the 2008 global financial crisis, with a participation rate of 65.5% - lower than for December 2021.

The Reserve Bank of Australia has described full employment as being in the low 4% range, and sees this as a condition for a revival in wages growth which will drive inflation into its target range of 2-3% and create conditions for a rise in interest rates.

CPI inflation was at 3% for the third quarter of 2021, while trimmed mean inflation – the RBA’s preferred measure – was at 2.1%. The bank has forecast trimmed mean inflation to reach 2.25% this year. CPI data for the third quarter of 2021 will be released next week, and a higher-than-expected print is likely to further fuel expectations that the RBA will raise interest rates sooner than it expects.

The central bank has continually said that it does not see conditions for a rate rise until 2024, although towards the end of last year it said that conditions could align for a rise in late 2023, and the spread of the Omicron virus variant is also a key factor.