A surprise fall in Australia’s unemployment rate has intensified speculation that the Reserve Bank of Australia (RBA) may consider further interest rate hikes. The unemployment rate unexpectedly dropped to 4.1 per cent in December, defying expectations of a rise from 4.3 per cent to 4.4 per cent. Additionally, the economy added 65,200 jobs, significantly exceeding the forecast of 30,000 new positions. Global X ETFs senior investment strategist Marc Jocum suggests this resilient labour market data diminishes the prospect of near-term easing and keeps the possibility of further tightening alive. Global X ETFs provides investors with targeted and cost-efficient access to investment opportunities. They offer a range of ETFs across various sectors, asset classes, and thematic investments.
According to Jocum, the latest figures indicate that labour market conditions remain tighter than the RBA would prefer. He highlighted that with labour supply continuing to expand and participation rates remaining high, the risk persists that wage growth could remain stronger than the RBA’s comfort level, particularly if demand proves more resilient than anticipated. Jocum stated this reinforces the need for caution from the RBA, noting that while recent inflation outcomes have improved, they have not yet instilled sufficient confidence that inflation will sustainably return to the midpoint of the target band.
The unexpected strength in the jobs market now makes a rate hike at the February meeting appear more likely than previously anticipated. Jocum cautioned that further rate increases remain a possibility if strong employment growth persists and inflation fails to sustainably return to the target range. All eyes are now firmly fixed on the next quarterly Consumer Price Index (CPI) print, scheduled for release next week, which will be a crucial factor in the RBA’s decision-making process.
Economists and market analysts will be closely monitoring the CPI data to gauge the underlying inflationary pressures in the economy. The RBA has consistently stated its commitment to bringing inflation back within its target band of 2-3 per cent, and the upcoming CPI figures will provide a critical indication of whether the current monetary policy settings are sufficient to achieve this goal.
