Australia’s inflation fight will involve 138,000 people losing their job, based on Reserve Bank forecasts.
The ranks of the unemployed would be 26 per cent higher than now, as 658,427 ended up on the dole by the end of 2024, up from 520,500 in September.
ANZ has compiled a new graph showing how the Reserve Bank is bracing for a jobless rate of 4.5 per cent to bring inflation under control.
Michele Bullock, the Reserve Bank’s new Governor, again indicated on Thursday that she would be inclined to raise interest rates, even if it meant higher unemployment.
‘Even though we haven’t raised interest rates since our last interest rate rise in June, we’ve made it very clear that we might need to go again,’ she told a Senate hearing.
‘We had not ruled that out and we’re in the same position.’
The Big Four banks – Commonwealth, Westpac, NAB and ANZ – are all forecasting a Melbourne Cup Day rate hike after September quarter inflation showed the consumer price index rising by 5.4 per cent over the year.
Australia’s inflation fight will involve 138,000 people losing their job, based on Reserve Bank forecasts. The ranks of the unemployed would be 26 per cent higher than now, as 658,427 ended up on the dole or jobless, up from 520,500 in September (pictured is a Sydney Centrelink queue in 2020)
The CPI had barely changed since June, despite 12 interest rate rises since May 2022.
A 13th rate rise in 18 months on November 7 would take the RBA cash rate to a 12-year high of 4.35 per cent.
The Reserve Bank isn’t expecting inflation to fall back to the top of its two to three per cent inflation target until June 2025.
It is also expecting unemployment to rise to 4.5 per cent by December 2024 as part of its inflation fight.
With unemployment in September easing back to 3.6 per cent, that would mean 137,927 people losing their job, based on an existing labour market of 14.632million people.
Treasurer Jim Chalmers in July clashed with Ms Bullock, with his department expecting unemployment to rise to 4.25 per cent, which would still mean 101,347 job losses instead of 137,927 retrenchments under a 4.5 per cent jobless rate.
‘While it’s a useful measure, it doesn’t capture the full potential of our workforce and it shouldn’t – and doesn’t – limit the government’s ambitions for getting more Australians into work,’ he told The Australian Financial Review.
‘If we succeed in reducing these structural sources of unemployment, we can improve the level of full employment that our economy can sustain – pushing the NAIRU statistical measure lower and increasing the speed limit on our economy.’
As deputy governor in June, Ms Bullock said low unemployment was bad for inflation.
‘If unemployment remains too low for too long, inflation expectations will rise, which will make it harder for the monetary policy authorities to bring inflation back down,’ she told the Australian Industry Group forum in Newcastle.
On Thursday, she stressed inflation could be brought under control without pushing unemployment too high.
‘We’ve judged that on balance, we think we can manage to bring the economy, slow the economy enough without actually putting it in a recession and an unnecessary increase in unemployment,’ she said.
‘If we can do it in that time frame, we think that we can get it back and we can keep inflationary expectations.’
ANZ has compiled a new graph showing how the Reserve Bank is bracing for a jobless rate of 4.5 per cent (dark blue dotted line) to bring inflation under control. But the non-accelerating inflationary rate of unemployment (light blue line) will be lower than two decades ago
Michele Bullock, the Reserve Bank’s new Governor, again indicated on Thursday that she would be inclined to raise interest rates, even if it meant higher unemployment
ANZ senior economist Blair Chapman noted the non-accelerating inflationary rate of unemployment was now lower than it had been during the 1990s and 2000s because baby boomers were now working longer.
‘Since older workers tend to have more stable employment and lower unemployment rates, workforce ageing has pulled the sustainable unemployment rate down over the past few decades,’ he said.
Mr Chapman said the non-accelerating inflationary rate of unemployment could be even lower in coming decades.
‘The current age profile of the Australian population suggests the ageing of the workforce will continue over the next decade and will continue to pull the sustainable unemployment rate and NAIRU down,’ he said.
‘A declining NAIRU should result, for example, in less pressure on wages and inflation over the next decade.’