© Reuters. FILE PHOTO: Office workers cross a street in Sydney, Australia, September 4, 2017. Picture taken September 4, 2017. REUTERS/Steven Saphore/File Photo
SYDNEY (Reuters) – Australia’s unemployment rate needs to rise to help contain inflation and avoid higher interest rates and a deep recession, a top central banker warned on Tuesday, after data showed little loosening in a still drum-tight labour market.
Reserve Bank of Australia (RBA) Deputy Governor Michelle Bullock said the jobless rate would need to rise to about 4.5% from the current rate of 3.6% to bring the economy back into balance, a rate still well below pre-pandemic levels.
“Our goal is to return the labour market back to a level more consistent with full employment … We think this can be achieved if employment and the economy more generally grow at a below trend pace for a while,” said Bullock at the Ai Group in Newcastle.
The RBA has already raised interest rates by 400 basis points to an 11-year high of 4.1%, including a surprise hike earlier this month out of fear that inflation was becoming entrenched.
Indeed, Bullock also warned that if inflation were to become entrenched in people’s expectations, that would mean higher rates and a larger rise in unemployment.
“A deep and long-lasting recession would be likely, which would mean a substantial rise in the unemployment rate.”
The RBA has projected inflation – which was running at about 7% – would return to the top of the bank’s target range of 2-3% by mid-2025, but warned risks are on the upside amid concerns about low productivity, fast rising labour costs, and stickiness in services inflation.
