A note on BCEC’s Monthly Labour Market Update – June 2024
Our commentary in the BCEC Monthly Labour Market Update – June 2024 is not supporting an interest rate rise. It is an assessment of the likelihood that the Reserve Bank of Australia (RBA) will increase rates at their next meeting.
We feel the strong full-time employment growth for June significantly increased the chance they will. That’s not to say we think that is good policy.
The key thing to remember is that the RBA’s main objective is to get inflation back into their target range of 2-3 per cent per annum. The only policy lever the RBA has at their disposal is interest rates.
The critical piece of information will be Wednesday’s inflation figures, and most critically the headline figure for the June quarter. The March quarter figure was 3.6 per cent.
Since then the monthly figures have been going in the wrong direction (3.6 per cent in April, 4.0 per cent in May), so it is very likely Wednesday’s figure will show inflation increasing on a quarterly basis.
Coupled with the June labour force figures, that would raise concerns on how long it is taking to get inflation back to target, and may well force the RBA’s hand.
Interest rates are a very blunt instrument for dealing with inflation.
Much of the source of inflation recently has not been demand driven, but due to supply-side factors, particularly housing and electricity costs.
An increase would certainly cause more hardship for many and add to the risk of a recession.
There seems to have been a change in the economy’s response to monetary policy in this cycle.
The cost of living crisis appears to be bringing more people into the labour market, thereby keeping wages low and sustaining employment growth.
So unemployment is not increasing as a result of higher interest rates as in previous cycles, which makes the RBA’s ‘narrow path’ even more treacherous.
Professor Mike Dockery
Principal Research Fellow and Monthly Labour Market Update Lead Author
Bankwest Curtin Economics Centre