Australia’s unemployment rate needs to rise to curb inflation: top central banker

AUSTRALIA’S higher interest rates and a deep recession, a top central banker warned on Tuesday, after data showed little loosening in a still drum-tight labour market.

Reserve Bank of Australia (RBA) Deputy Governor Michele Bullock said the jobless rate would need to rise to about 4.5 per cent from the current rate of 3.6 per cent to bring the economy back into balance, a rate still well below pre-pandemic levels.

“Our goal is to return the labour market back to a level more consistent with full employment ... We think this can be achieved if employment and the economy more generally grow at a below trend pace for a while,” said Bullock at the Ai Group in Newcastle.

Bullock, when asked about further rate rises, said the Reserve Bank was not being “bloody minded” in tightening policy and it was not on a preset path, but remained on data-watch mode.

The RBA has already raised interest rates by 400 basis points to an 11-year high of 4.1 per cent, including a surprise hike earlier this month out of fear that inflation was becoming entrenched.

Bullock also warned that if inflation were to become entrenched in people’s expectations, that would mean higher rates. “A deep and long-lasting recession would be likely, which would mean a substantial rise in the unemployment rate.”

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Australia’s central bank hikes rates for fear inflation becoming entrenched

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The RBA has projected inflation – which was running at about 7 per cent – would return to the top of the bank’s target range of 2-3 per cent by mid-2025, but warned risks are on the upside amid concerns about low productivity, fast rising labour costs, and stickiness in services inflation. REUTERS