- The Reserve Bank of Australia (RBA) is facing an increasingly urgent battle against rising inflation, but economists warn that their efforts could come at a huge cost to the labor market.
According to reports, leading economists suggest that if the RBA’s efforts to control inflation are successful, the unemployment rate could rise to 5.5%, potentially wiping out all the historic gains made in the labor market during the pandemic.
Bill Evans, Chief Economist at Westpac, predicts this dire outcome, stating that by mid-2025, there could be hundreds of thousands of Australians unemployed, compared to the low unemployment rate of 3.6% seen in the past 50 years. Evans believes that the RBA has shifted its focus towards urgently addressing consumer price growth, even if it means sacrificing employment growth.
Evans highlights a significant change in tone from RBA Deputy Governor Michele Bullock, who recently stated that the unemployment rate should rise to 4.5%. However, this week, the Deputy Governor said, ‘We’re uncomfortable with unemployment below 4.5%.’ The goal of increasing unemployment by 1% is different from the tone of trying to maintain post-pandemic employment growth.”
The employment growth is at risk due to the RBA’s series of rapid interest rate hikes, which raised the cash rate from 0.1% to 4.1%. Evans expects further interest rate hikes at the upcoming meeting, with rates reaching 4.6% by August. He believes that the significant gap between labor supply and demand will require a much larger adjustment in the job market.
In summary, the RBA faces a challenging task in balancing its efforts to control inflation while preserving employment growth gains made during the pandemic. While the interest rate hikes may be necessary to curb inflation, they could come at a significant cost to the labor market. The delicate balancing act requires careful consideration of both factors to ensure long-term economic stability.For homeowners seeking assistance in navigating these challenging times, North Sydney Mortgage Broker Speed Lending offers expert guidance and support. Visit their landing page at Buying Home or Click here to calculate your borrowing capacity by yourself.