Reserve Bank of Australia (RBA) Governor Michele Bullock has dismissed concerns about rising unemployment, suggesting the labour market will not 'fall off a cliff'. Speaking at an Australian Business Economists dinner in Sydney, Bullock acknowledged that the September quarter brought unwelcome surprises, including higher-than-expected inflation and a rise in joblessness to 4.5%, which exceeded the RBA's forecasts.
Bullock emphasised that job creation is slowing but not collapsing, aligning with the RBA's expectations. 'There are still jobs being created, just not as many,' she said. The governor noted that the labour market remains 'a little bit tight' and is moving back towards balance as a byproduct of slow economic growth. Following her comments, market pricing for a rate cut at the next RBA meeting collapsed to about 10%, down from 60%.
The RBA faces a dilemma: inflation in the September quarter is expected to rise sharply, partly due to the end of government power bill subsidies. The consensus among economists is for the headline inflation rate to jump from 2.1% to 3%, while the RBA's preferred 'trimmed mean' measure is expected to remain at 2.7%. Bullock acknowledged that such an outcome would represent a significant break from the RBA's forecasts.
Economists are divided on the path ahead. Luci Ellis of Westpac said forthcoming inflation data would determine the RBA's decision, while Johnathan McMenamin of Barrenjoey warned that delaying rate cuts too long could risk the economy's 'soft landing'. Belinda Allen of CBA noted that fear of reigniting inflation would keep the RBA focused on price pressures, pushing the next rate cut well into next year.
