I’m tipping interest rates will go up again today which means higher unemployment.
When interest rates go up to try tame inflation – caused in large part by Trump’s war with Iran – the dole lines grow longer. This story appeared recently in The Guardian, written by Greg Jericho.
In September, as was the case in July and August, petrol prices were the big driver. Automotive fuel rose 9.4% in the month. They also look set to rise another 7% when the October figures come out next month.
Around half of the increase in inflation in September came from fuel prices. This was followed by holiday costs, which always go up at the start of spring.
The impact of petrol prices over the past three months is, of course, all driven by oil prices oddly refusing to react to either the RBA raising rates or Donald Trump declaring mission accomplished in Iran.
The impact of petrol prices since June on overall inflation is obvious when you look at inflation with and without those prices. Without petrol prices, inflation would be at 3.6% – well below the 4.3% official rate.
And yes, 3.6% is higher than the Reserve Bank would like, but it does perhaps give an indicator of what we are dealing with here.
Inflation isn’t galloping ahead due to domestic pressures; rather, it is remaining higher than the RBA’s target due to the flow through of oil prices into costs (including holidays) and directly in fuel prices.
We are also seeing the impact of AI datacentres on inflation. As with last month, once again the price of games increased. That’s because we are not talking about board games, but those which require computer chips – the same type that are in such high demand for datacentres.
The ABS noted that the 15.5% price rise for games, toys and hobbies in the past year was “driven by price increases in memory and storage components being passed on to consumers”.
But look, anything I tell you here isn’t going to make a lick of difference. The RBA is going to raise rates anyway.
What is interesting, though, is it makes it clear just how much more the RBA cares about inflation than its other mandate of full employment.
When the September unemployment figures of 4.7% were released, the market quite rightly dropped the likelihood of a rate rise to a less than one in five chance. But the RBA was clearly not happy with that.
Last week, the deputy governor of the RBA, Andrew Hauser, made it clear the RBA was not happy with things, saying “the inflation outlook looks materially worse than we projected in the August report”.
He further said that there is “an increasing share of businesses who are thinking that maybe 3% to 3.5% is the new normal … that is the central banker’s nightmare”.
And boom, the odds of a rate rise increased from 22% to 51%, and they kept going up.
And as for the increases in unemployment? That is rather less of a concern for the RBA.
Greens senator Nick McKim asked Michele Bullock whether she was “worried … about the pace of the increase in unemployment, specifically what rise in unemployment would give the RBA cause for a reasonable concern that we would head into recession?”.
He asked this due to unemployment rising from 4.1% in January to 4.7% in September.
Right now, Australia’s three-month average unemployment rate has risen 0.45% in the past year, and if the October rate remains at 4.7%, it will break through the 0.5% mark
Bullock replied: “We’re not worried about the pace of increase in the unemployment rate at this stage. We do forecast that it has to gradually move up … I can’t be specific about what that number is. What I can say is we think that it’s probably above where the unemployment rate is at the moment.”
So that’s nice. Sleep well knowing that Australia’s unemployment rate is rising but the central bank will increase rates again, knowing it might send it up even higher.