Australian unemployment unexpectedly fell to 4.1 per cent in December, according to ANZ economists. This figure is below both their own and the broader market’s forecast of 4.3 per cent. ANZ anticipates that this data will compel the Reserve Bank of Australia (RBA) to describe labour market conditions as “somewhat tight” when it convenes next month.
According to ANZ, the latest data marginally increases the likelihood of a rate rise in February. However, the ultimate decision will depend on the December-quarter inflation figures due next week. A trimmed mean outcome of 0.8 per cent would likely cause the RBA to hold steady. Conversely, a result of 0.9 per cent would make a rate rise more probable, pending detailed CPI information.
Despite the surprise drop in unemployment, ANZ does not foresee this as the beginning of a sustained trend. They cite underlying weakness in measures of labour demand as a mitigating factor. Furthermore, ANZ does not expect the RBA’s forecasts in the upcoming Statement on Monetary Policy (SMP) to project a continued decline in the unemployment rate from its current level.
