Australia’s labour market is operating above full employment and the economy is near capacity, according to BDO chief economist Anders Magnusson. Analysis of December’s jobs data reveals that the unemployment rate, underutilisation rate, and underemployment rate have all decreased, signalling a notably tight labour market. This contrasts with the Reserve Bank of Australia’s (RBA) projections, which anticipated unemployment stabilising around 4.4 per cent.
Magnusson stated that the current 4.1 per cent unemployment rate suggests that the labour market is tighter than expected. He believes this indicates that spare capacity may be more limited than the RBA currently assumes in their forecasts. Consequently, the employment figures will likely be less of a focal point at the upcoming February RBA board meeting.
Instead, Magnusson suggests that inflation will dominate discussions at the February meeting. The key data will be the December-quarter Consumer Price Index (CPI), which is expected to provide the RBA with updated insights into price pressures. This follows hotter-than-expected inflation figures in the September quarter.
Magnusson anticipates the RBA will likely hold the cash rate steady, adopting a wait-and-see approach for another month, rather than initiating a tightening cycle in February. He added that the labour market remains tight enough that the RBA would not be jeopardising full employment if it were to raise rates, should the inflation data warrant it.
