Unemployment has been steady for months as inflation has fallen, but the Reserve believes the job market is still too strong. The bank may be wrong.
The Reserve Bank is being accused by some of the nation’s top economists of putting the employment of hundreds of thousands of Australians at risk by keeping interest rates too high in order to reduce inflation.
RBA governor Michele Bullock made clear last week that the bank believed the jobs market was still too strong, describing it as “unusually tight” compared with other countries that have started cutting their key interest rates.“At present, we judge that conditions in the labour market remain tighter than what would be consistent with low and stable inflation,” she said.
Boyton said several indicators, including slowing wages growth and an easing in inflation even as the unemployment rate has remained steady, suggested the Reserve was holding interest rates too high at a potential cost to the overall economy. Gareth Aird, the Commonwealth Bank’s head of Australian economics, said the RBA could allow the unemployment rate to be lower without adding to the nation’s inflation problems.
It’s not just private sector economists who believe the bank is overestimating the inflationary impact of the jobs market.
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