AUSTRALIA’S jobless rate fell to a 13-1/2 year low as the economy added more jobs than expected last month, in a result that’s likely to embolden hawks who are predicting an interest-rate increase as early as June.
Unemployment declined to 4% in February, the lowest level since August 2008, Australian Bureau of Statistics data showed on Thursday. Employment rose by 77,400 from a month earlier, led by full-time roles, and more than doubled economists’ estimates. Labor market participation also moved higher.
“Participation rose to a new record high in February and was around 0.6 percentage points higher than the start of the pandemic,” Bjorn Jarvis, head of labor statistics at the ABS, said in a statement. “The increase in participation continues to be particularly pronounced for women.”
The Australian dollar pushed higher to break above 73 US cents following the data. It was trading at 73.18 cents at 11:58 a.m. in Sydney. The three-year bond yield was little changed at 1.87%, having climbed 6 basis points earlier.
The result suggests the Reserve Bank is likely to soon see the wage rises it wants before raising rates, with leading indicators pointing to the labor market tightening further. Money markets are pricing an RBA hike in June, while most economists have settled on August for rate liftoff.
Job ads data released last week showed construction and mining, mobile plant operators, animal and horticulture, education and healthcare are facing the sharpest labor squeeze at the moment.
RBA Governor Philip Lowe says policy makers can wait longer before raising rates as inflation Down Under isn’t as pressing as in other jurisdictions. He’s testing to see how far he can drive down the jobless rate with a record-low 0.1% cash rate before wages growth takes off.
His stance contrasts with the Federal Reserve, which raised interest rates for the first time since 2018 on Wednesday, a week after tΩe European Central Bank delivered a hawkish surprise.
Still, Lowe acknowledged last week that Russia’s invasion of Ukraine and the spike in energy prices is likely to give another leg up to global inflation. Indeed, the governor struck a more hawkish tone when he said in a speech that a rate hike later this year is plausible.
The RBA expects that it will take time for inflation to be sustainably in its 2-3% target as the impact of global supply chain blockages and higher commodity prices will eventually wash out. It’s waiting for wages growth to underpin stronger consumer-price gains.
How long that takes depends on the reaction time of wage-setting mechanisms and the impact from the reopening of Australia’s international borders last month. Figures from the ABS on Wednesday showed 49,420 international students — who tend to work part-time in the hospitality industry — entered Australia in February, the most since March 2020.
However, a cap on permanent migration means labor shortages are likely to persist given the jobless rate is moving toward territory unseen for 50 years. — Bloomberg