MNI BRIEF: RBA Pause Debate Stoked By Dec Jobs Slowdown

The debate over the timing of a pause in the Reserve Bank of Australia's rate hike campaign has been renewed after December jobs data showed signs the red-hot labour market may no longer be tightening. Employment fell by 14,600 jobs according to the Australian Bureau of Statistics, disappointing market expectations for a gain of 25,000 jobs and the participation rate dipped 0.2pp to 66.6%, although the unemployment rate remained steady at a 48-year low of 3.5%.

The tight jobs market has been a concern for the RBA, with Governor Philip Lowe warning of the risk of a wage-price spiral (see MNI BRIEF: RBA's Lowe Flags Wages Risk In Inflation Fight). The RBA had been surprised by the strength in the labour market over the prior two months. However, job vacancies have fallen, though they remain at elevated levels -- job advertisements have also fallen. Wage rises have been restrained, with the Wage Price Index up 3.1% y/y in Q3. The reopening of Australia's borders in early 2022 has eased the tightness in the labour market, boosting the RBA's attempts to rein in inflation. (See MNI POLICY: RBA Inflation Fight Aided By Increased Migration)

Some economists expect the RBA will raise rates 25bp to 3.35% when it meets on Feb 7 as inflation remains well above target. Q4 CPI will be released on Jan 25. However, markets are yet to be convinced: overnight indexed swaps fell slightly on Thursday, pricing in 3.23% compared to 3.26% on Wednesday. Australian 10-year bonds rallied, while the aussie fell after the data release.