Australia’s strong hiring showed little sign of abating in May, while unemployment held at a 48-year low, underscoring the case for the Reserve Bank to keep rapidly increasing interest rates.
Employment advanced by 60,600 from a month earlier, driven by full-time roles, Australian Bureau of Statistics data showed Thursday. The jobless rate remained at 3.9% as the participation rate jumped to a record 66.7%.
The tightest labor market in around 50 years highlights the need for the RBA to keep removing monetary stimulus as it tries to rein in intensifying inflation. It also provides a degree of confidence to policy makers that the A$2.2 trillion ($1.5 trillion) economy will be able to withstand higher borrowing costs that are likely to weigh on consumption.
The RBA raised by a larger-than-expected 50 basis points last week, having initiated a tightening cycle in May, taking the cash rate to 0.85%. Economists predict another half-point increase in July and debate is mounting about further outsized moves after the Federal Reserve raised by 75-basis points overnight.
The low level of unemployment and soaring cost of living is among reasons Australia’s industrial relations umpire on Wednesday raised the minimum wage by a larger-than-expected 5.2%.
That decision, together with a hawkish signal from RBA Governor Philip Lowe Tuesday and the Fed’s aggressive move has prompted money markets to price in rapid hikes in Australia. Overnight indexed swaps now imply the cash rate at 3.7% by December and 4.1% by mid-2023.
Economists say that pricing is too aggressive and expect the RBA will move more cautiously given the heavy debt burden of Australian households. Lowe, in a rare interview Tuesday evening, said it was “reasonable” to expect the cash rate would reach 2.5%.
