Bullock says jobs market still a bit tight ahead of next week's RBA rate decision
Reserve Bank of Australia (RBA) governor Michele Bullock has suggested that Australia's unemployment rate may need to climb as high as five per cent to take the pressure off inflation.
Speaking at a Committee for Economic Development of Australia (CEDA) event in Sydney on 22 September, Bullock said the labour market is still a bit tight, adding to pressure on inflation.
"I think between 4.5 and five will probably take enough heat out of the labour market that it'll ease pressure on inflation," she said.
Bullock made the remarks in response to a question on what level of unemployment the central bank would tolerate to rein in inflation.
Australia's unemployment rate was 4.5% in July in seasonally adjusted terms, according to the Australian Bureau of Statistics.
Bullock declined to name a specific target. She said the RBA's focus is on the level of joblessness that relieves strain on the economy's capacity to produce goods and services.
"It's not that I can say I will only tolerate an unemployment rate of, say, 4.5% at the moment. At the moment, we think that's a bit tight," she said.
"So the question really is not what can I tolerate or what can the Board tolerate, but what level of unemployment eases the pressure on the supply side of the economy."
She said inflation remains too high because demand in the economy is outstripping supply, adding that "one evidence of that is that the labour market looks tight."
Bullock also acknowledged the cost of higher joblessness. She said the RBA focuses on unemployment as part of its mandate "because having a job is really important," noting that "high unemployment is not great."
AI and the labour market
The governor also warned that artificial intelligence could complicate the trade-off between inflation and unemployment in the near term if workers in roles that are no longer needed struggle to move into new jobs.
"In technical terms, the NAIRU might be higher for a while, which means that for any given inflation rate, we have to tolerate a higher unemployment rate," she said, referring to the non-accelerating inflation rate of unemployment.
Bullock added that new jobs would be created as the technology spreads, though "we just don't necessarily know where they are yet."
Rate decision looms
The comments come days before the RBA's Monetary Policy Board meets on 28 and 29 September. All four major banks and most money market traders expect the central bank to raise interest rates at that meeting, the ABC reported.
Bullock, however, would not be drawn on the board's next move.
"I don't give forward guidance. I'm not signalling anything," she said.
She said the board had highlighted upside risks to inflation after its last meeting, including excess demand, the Middle East conflict and inflation expectations, and is now assessing whether those risks are materialising.
"The Middle East conflict has gone on now for much longer than people thought it would," she said.
