Reserve Bank sticks to its guns in face of weaker jobs market
The Reserve Bank has not been thrown off course by softer-than-expected jobs data and says unusual post-Covid employment patterns largely explain the weak January result.
RBA governor Philip Lowe said the central bankās overall assessment of the labour market is itās still very tight despite the official unemployment rate lifting from 3.5 per cent to 3.7 per cent in January.
He said the soft labour force data would not trigger a rethink of the bankās latest advice that at least two more interest rate rises were needed to get āway too highā inflation under control.
As identified by other economists, RBA assistant governor Dr Luci Ellis said a departure from usual seasonal factors seen in January in part explained the unexpectedly weak January labour force report.
āIt used to be people would do the Christmas shopping in December, theyād go on holiday in January, and theyād buy cars in the financial year sales in June ā and all of those things have shifted,ā she said.
Ellis said more people than usual took holidays in January due to built up leave during Covid, which showed up as a decline in hours worked.
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The data also revealed a higher-than-usualĀ number of people waiting to start a job, which means they were counted as unemployed in January but would show up as employed in the February edition.
āWe agree that the labour market is a bit less tight than it was a few months ago, but we would still regard it as being tight and this is an area weāre watching closely,ā she told the committee.
Lowe also said there was other evidence of tightness in the jobs market, including in the bankās communications with employers.
āThey tell us theyāre still hiring,ā he said.
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āItās a bit easier to hire than it was two months ago, but theyāre still hiring.ā
The RBA expects the unemployment rate to gradually drift up due to slower growth and to reach 4.5 per cent by mid-2025.
The head of the RBA also defended the central bankās aggressive interest rate hiking cycle in response to the highest inflation rate since 1990.
In an opening statement to a parliamentary committee, Lowe said the inflation rate was still too high at 7.8 per cent in the December quarter.
āThis is the highest rate in a number of decades and it is higher than we were expecting just a few months ago,ā he said.
Lowe reiterated the need for more interest rate increases in the months ahead based on the information available to date.
āHow much further interest rates need to increase will depend on developments in the global economy, how household spending evolves and the outlook for inflation and the labour market.ā
The appearance before the House of Representatives economics committee, chaired by Labor MP Daniel Mulino, is Loweās second round of questioning from parliamentarians this week.
This followed another 25 basis point interest rate hike last week that took the official cash rate to 3.35 per cent.
-AAP
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