The near 50-year low of 3.7 per cent should silence those who want to suggest that the Reserve Bank’s 13th cash rate increase last November was some sort of monetarist mistake.
Already a subscriber?Australia’s version of the post-COVID jobs boom has pushed the labour share of the non-mining economy to a multi-decade high. It’s pushed the jobless rate below 4 per cent again – to a near 50-year low of 3.7 per cent. Combined with the stalling of productivity growth, it should silence those who want to suggest that the Reserve Bank’s 13th cash rate increase last November – to 4.35 per cent – was some sort of monetarist mistake.
The jobs jump of 116,500 in February – three times as big as economists had tipped – followed the weaker than estimated jobs growth in December and January as changing spending trends play havoc with the Bureau of Statistics’ seasonal adjustment. But the 437,000 employment increase over the past year has easily absorbed the added labour supply from the temporary rebound in international arrivals – most of them foreign students – that is causing such a populist fuss in Canberra.
Like Reserve Bank governor Michele Bullock, Fed chairman Jerome Powell talks of “a bumpy road” to describe signs of stalling disinflation. The danger is that these bumps in the road may throw the economy off what the Australian central bank governor calls the narrow path to a low inflation soft landing. “We know that reducing policy or strength too soon could result in a reversal of the progress we’ve seen on inflation, and ultimately require even tighter policy,” says Mr Powell.
For Australia, job vacancies remain well above pre-pandemic levels. With productivity flat, the cost of labour per unit of production is growing by 7 per cent a year, inconsistent with the inflation target. While the strength of the job market is good news in many ways, it will likely prevent any RBA interest rate cut until perhaps late this year.
Some want to instead blame supposed corporate price gouging and profiteering as part of a campaign to weaken the central bank’s resolution in fighting inflation. The confected attack on supermarkets, particularly Coles and Woolworths, is part of this, even though their profit margins of a few percentage points of revenue, mathematically can’t be the cause of Australia’s cost-of-living squeeze. The critics claim that the Australian supermarkets have higher profit margins than in, say, the UK.