The major banks have said that a lift in unemployment has eased the case for future cash rate increases.
Economists at the major banks have said that the lift in the unemployment rate to 4.5 per cent has eased the case for further Reserve Bank cash-rate increases.
The Australian Bureau of Statistics (ABS), the national statistical agency, reported that the seasonally adjusted unemployment rate increased by 0.1 percentage point in July to 4.5 per cent, following a 4.4 per cent reading in June.
Employment fell by 16,000 people during July, while unemployment increased by 4,000.
ABS head of labour statistics Sean Crick said the fall in employment was concentrated among men.
He added that the composition of the employment decline was also notable, with part-time roles accounting for most of the reduction in male employment.
“The majority of the fall in employment came from males, which fell by 11,000 people. There were 10,000 fewer males employed part-time, and 1,000 fewer in full-time employment in July,” Crick said.
Other measures reinforced the softer reading, with the employment-to-population ratio declining 0.2 percentage points to 63.9 per cent, while the participation rate – a measure of the share of the population working or actively seeking work – also fell 0.2 percentage points to 66.9 per cent.
Softer labour market reduces likelihood of further hikes, majors say
The Commonwealth Bank of Australia (CBA) said the move higher in unemployment should temper domestic price pressures, particularly through wages.
“With the unemployment rate drifting higher, all else equal there should be less upward pressure on wages and inflation moving forward,” the bank said.
The bank expects the labour market to continue cooling as the economy slows and has forecast unemployment to reach a peak of 4.7 per cent by the end of 2027.
It said that outlook supported its expectation that the RBA would leave the cash rate unchanged at 4.35 per cent this year.
“This is a positive for the inflation fight and if our forecasts are correct, will be supportive of our view that the RBA will keep the cash rate on hold at 4.35 per cent,” CBA said.
“But risks to inflation remain to the upside even if the labour market is not currently at the top of the list of concerns.”
NAB said the July result validated the RBA’s decision to look beyond the stronger employment outcome recorded in June.
It also noted that the figures were consistent with the central bank’s view, outlined in its August Statement on Monetary Policy, that conditions had become somewhat less tight this year.
Australia and New Zealand Banking Group (ANZ) similarly said the data reduced the risk that labour conditions would fuel a fresh inflation problem.
“This suggests that the labour market and wages will not be a source of upside inflation risk for the RBA,” the bank said.
[Related: New RBA Monetary Policy Board member appointed]
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