Australia | Dec 07 2006
By Greg Peel
They said it was a seasonal anomaly and they were right. Even those economists staunchly supporting a move to monetary policy easing next year were wary of a bounce in the employment figure, and they got it.
Employment rose by 36,100 jobs in November after a fall of 32,500 in October, to be 2.5% above the level of a year earlier. The unemployment rate remained at its 30-year low of 4.6%.
TD Securities’ Stephen “Kooky” Koukoulas suggests this result is straight out of Economics 101 – the Australian economy is running at above full capacity, the GDP is weakening (as was the result yesterday) and employment is on the rise. This also means high inflation.
At the end of the day it is very unusual for an economy to experience 15 straight years of economic growth.
Australian companies would like to produce more, but they can’t. They are using all their available plant, and they can’t find workers anyway. Scarcity of workers forces wages up, which forces prices up, and there we have it – the inflation spectre that the RBA so fears.
Kooky notes headline inflation is currently at 3.9%, with core inflation at the top of the RBA’s range at 3.0%. It looks like these numbers can only get worse. Petrol prices have stabilised at lower levels, bananas are almost back to normal, but the pressure on core inflation from full employment is significant.
A slip in GDP growth is not anything the RBA is going to worry about, says Kooky. It is inflation that ensures any talk of rate cuts next year is “a waste of space”. The great chance is the RBA will have to hike again.
Economists at ANZ and Westpac agree that another rate hike looks more of a chance. CBA is slightly more restrained, suggesting only that “emerging speculation about rate cuts towards the end of 2007 looks premature”.