Australia’s jobless rate needs to climb to around 4.5%, from 3.6% now, and the economy grow at a “below-trend pace” for inflation to return to target, according to Reserve Bank No. 2 Michele Bullock.
(Bloomberg) — Australia’s jobless rate needs to climb to around 4.5%, from 3.6% now, and the economy grow at a “below-trend pace” for inflation to return to target, according to Reserve Bank No. 2 Michele Bullock.
The RBA’s forecasts released last month showed headline inflation will only return to the top of its 2-3% target in mid-2025, with the unemployment rate seen rising to 4.5% by then. Broader economic activity, which has already slowed, is seen expanding at a below-2% pace through 2024.
“Our goal is to return the labor market (and the market for goods and services) back to a level more consistent with full employment – something like the endpoint in our forecasts,” Bullock said in a speech on Tuesday. “We think this can be achieved if employment and the economy more generally grow at a below trend pace for a while.”
The RBA has raised rates by 4 percentage points since May 2022 to fight stubbornly high inflation — currently around 7% — and has warned that further tightening may be required. Bullock reiterated the RBA was “resolute” in returning inflation to target.
“If high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment,” Bullock said. “A deep and long-lasting recession would be likely, which would mean a substantial rise in the unemployment rate.”
Bullock was speaking at an industry event in Newcastle, about 160 kilometers (99.4 miles) north of Sydney.
“Our judgement is that if we can return inflation to target in a reasonable timeframe – while preserving as many of the employment gains as we can – that would be a better outcome,” Bullock said.
Earlier in the day, minutes of the central bank’s June meeting showed policymakers weighed the risk of upside surprises to inflation from a tight labor market and rising home prices when they decided to deliver a surprise interest-rate increase.
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