Oz Consumers See Higher Inflation, Lower Unemployment

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By Rudi Filapek-Vandyck

Westpac economists report consumers’ unemployment expectations in Australia have recorded their eighth consecutive fall in October, continuing a rapid downtrend since peaking in February.

With the backdrop of the strong September employment data showing an unexpected dip in the unemployment rate from 5.8% to 5.7% released in the midst of the survey period, the fall in the index in October was the largest since March 1996. The unemployment expectations index fell 14.6% in October to 112.38 after a 3.6% fall previously, for a cumulative 38.6% fall from the February peak.

The economists report they prefer to assess this index via a smoothed trend deviation from the full history average as a guide to annual employment growth seven months ahead. This deviation measure fell for the seventh consecutive month, to 0.7% in October from 12.9% in September, the lowest since May 2008.

With the deviation measure of unemployment expectations having peaked in March 2009, the data are in line with Westpac’s recently revised view that has annual jobs growth troughing in Q4 2009, the economists report. They do add they do not expect jobs growth to reaccelerate as rapidly as the current deviation measure of this index would imply, arguing instead that, just as the slowing in jobs growth was tempered by a focus on cuts in average hours worked rather than significant outright job cuts, so too will an upturn in average hours worked temper the upswing in new hiring.

Despite a further rise in consumer sentiment in October, consumers’ inflation expectations remained steady in October for the third consecutive month at 3.5%. This saw the uptrend since March continue, rising to 3.63% from 3.49% previously, the highest reading since October 2008.

The trend expectation of managers and professionals rose to 3.78% from 3.54%, which is also the highest since October 2008. The proportion expecting inflation within the 2% to 3% target band edged down to 17.3% from 17.4% but remains well above the twelve month average (11.7%), and the proportion expecting inflation above the band also eased to 57.8% from 59.1%. A greater proportion were unsure this month (10.9% in “don’t know” vs 9.2% previously).

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