Economists issue rate hike warning as unemployment rate holds steady

A leading economist has warned Australians could cop a rate hike next month after the country’s unemployment figure remained steady in June.

Data from the Australian Bureau of Statistics (ABS) released on Thursday revealed the jobless rate remained at 4.4 per cent, with tens of thousands of people finding work.

That was in line with economists’ forecasts, although far more people gained work than expected.

The number of unemployed people rose by 13,000 people in June, while 76,000 people started a new job.

ABS head of labour statistics Sean Crick said the surge in number of workers finding a job was stronger in June than what is normally seen at this time of the year.

“Part of the growth in employment this month came from those who were waiting to start a job in May,” he said.

“This represents a stronger June movement than has been observed in recent years.

“We also continued to see higher numbers of people remaining employed this June, following elevated levels in the recent few months.”

However, the participation rate only rose by 0.3 per cent to 67 per cent due to the rise in unemployed people, which has contributed to the overall unemployment level remaining steady.

Despite the rise in people becoming employed, experts predict unemployment will continue to rise in the next 12-18 months, as difficult labour conditions and global uncertainty caused by the Middle East conflict continue to hit the economy.

“We expect the unemployment rate to rise to 4.6 per cent by the end of the year,” Oxford Economics Australia’s Harry McAuley said.

“However, a renewal of hostilities in the Strait of Hormuz presents a significant risk to the outlook.”

He said the tight labour market meant the Reserve Bank of Australia (RBA) still had “headroom” to hike interest rates, especially if inflation continued to remain higher for longer than expected.

However, a reason for optimism is the fact so many people were able to find employment despite the difficult inflation and economic conditions in Australia at the moment.

Inflation warning for Aussies

The RBA will meet next month to make the latest call on whether to hold interest rates or raise them.

While many analysts expect the cash rate to remain steady at 4.35 per cent, Diana Mousina from AMP is not so sure.

“We expect another 0.25 per cent rate hike, which would take the cash rate to 4.6 per cent,” she said after the unemployment figures were released.

“Today’s strong labour force data gives the RBA room to hike rates again, because there will be less concern that another interest rate increase will hurt the economy.

“I think the RBA would view today’s jobs data as indicating that the labour market is still a bit ‘tight’ – which means that wages growth will remain higher than is consistent with the inflation target.”

Wee Khoon Chang, APAC macro strategist at financial services company BNY, disagreed, saying the RBA was more likely to hold interest rates next month, but admitted a final decision would depend on inflation figures to be released next week.

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“The very strong monthly jobs number, with a spike in the participation rate, affirms Australia’s tight labour conditions,” Chong said.

“This, along with renewed strength in oil prices and fresh uncertainty around the inflation outlook, should keep the RBA in a vigilant mode.”

Headline inflation sits at 4.0 per cent, well above the RBA’s 2-3 per cent target range.