RBA Aiming To Return Unemployment To Neutral To Contain Prices

RBA Deputy Governor Bullock has just addressed the AIG in Newcastle. Her speech was focussed on recent labour market developments and she reiterated that Australia is currently at or above full employment and that the Board remains “resolute” in returning inflation to target. She also noted that the risks have increased that inflation is not contained soon enough. Bullock also didn’t answer if she would be happy to take over as RBA Governor.

• The unemployment rate will rise as inflation comes down and that the RBA expects it to reach 4.5% which they estimate is in line with the NAIRU and so demand and supply for labour should be in balance and consistent with the inflation target.
• Despite some easing, labour demand still exceeds supply, but Bullock said that migration is not the solution as it increases aggregate demand. The unemployment in the economy now is structural and retraining is needed.
• In terms of the labour market, the RBA is watching the underemployment rate, vacancies-to-unemployment and job mobility very closely. It is also focused on inflation data, especially services, consumers and what they do with their savings, and developments overseas, particularly inflation.
• The RBA is yet to see much labour saving occurring in the economy, which would help to improve lacklustre productivity.
• The government can help the RBA by not allowing wages to rise too much and not adding to aggregate demand.