According to VanEck’s head of investments and capital markets, Russel Chesler, the Australian labour market needs to loosen further to effectively combat inflation. He believes this loosening would help alleviate both the cost of living pressures and the need for high interest rates. VanEck offers a range of exchange-traded funds (ETFs) providing investors with access to diverse investment strategies. The firm aims to provide innovative investment solutions across various asset classes.
Chesler noted that while the unemployment rate remains at historically low levels, recent data shows some positive signs. “The unemployment rate was higher than expected last month, pushing outside of the 3.9 to 4.1 per cent range for the first time since March 2024. This was a positive development that likely played a big role in the RBA’s decision to announce a rate cut earlier this week.” He also pointed to the Wage Price Index, which indicated a slowdown in wage growth compared to the previous year. However, he cautioned that the July increase to the minimum wage would likely limit further compression in wage growth for the remainder of the year.
Despite markets pricing in two more rate cuts by March of next year, Chesler expressed scepticism about the justification for further easing based on current economic data. “Based on the current data to hand, we do not think any more rate cuts this year are justifiable. Given there is plenty of strength in the economy already, we’d need to see how the existing rate cuts play out before factoring in any additional easing,” he stated.
Chesler cautioned against premature rate cuts, emphasising the potential risk of reigniting inflation. “The rate cut in May has barely had time to work through the system, let alone the cut this week. Too many rate cuts run the risk of increasing inflation, which is the last thing the RBA wants.” He suggested a measured approach, allowing the effects of the recent rate cuts to fully materialise before considering additional easing measures.
