The unemployment rate in Australia jumped last week reaching a 13 year high raising concerns the Reserve Bank of Australia will have to cut interest rates again in March to stimulate growth and stop the jobless rate from spiraling out of control.
According to the bureau of statistics, the unemployment rate jumped to 6.4%, up from 6.1%, with the number of jobs falling by 12,200 against analysts’ expectations of a 5,000 decline which sent the Aussie dollar tumbling towards a new 6 year low.
Summing up the situation, and predicting that the central bank will have no choice but to act on rates further was A JP Morgan economist, Tom Kennedy who said it was a “shocking report all round”.
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“There was not a lot of good news in this report,” he said,
“At this stage the data has been quite mixed, we had some pretty strong housing numbers, but then we get this January jobless number, so it is a very fine balancing act,” he said.
“At this stage we think May is more likely than March, but March is going to be a live meeting in terms of market pricing and expectations.”
The only thing that may keep the RBA from cutting rates further is concerns over the ever rising property market which some say will continue to shoot up in the event of even lower interest rates.
In their latest meeting the bank noted that,
‘Housing price inflation had moderated from the rapid rates seen in late 2013, but remained high and in Sydney and Melbourne had been well above the growth rate of household income,’
The RBA said the growth of investor credit continues to outpace the growth in owner-occupier housing credit and that they would keep a close eye on how things develop by monitoring prices as well as moves last year by the Australian Prudential Regulation Authority, introduced to curb investor activity
“Given the large increases in housing prices in some cities and ongoing strength in lending to investors in housing assets, members also agreed that developments in the housing market would bear careful monitoring,” the RBA said
They also noted that it would be “important to assess the effects of the measures designed to reinforce sound residential mortgage lending practices announced by APRA in December”.
Also causing concern to the Australian economy last week was the disappointing CPI figures from China coming in at 0.8% to the twelve months in January down sharply from the 1.5% rise in December, marking its lowest level since November 2009
The producer price index which measures the costs for goods at the factory gate fell from 3.3% in the last year to 4.3% racking up nearly 3 years of consecutive declines.
Noting there is cause for concern was ANZ Bank’s chief Greater China economist Liu Li-Gang who said that the weak figures suggest that deflation has “become a real risk for China” and that the Chinese government were not just going to sit on their hands and wait but have decided to act,
Mr Liu said further monetary policy easing would help “facilitate the undergoing de-leveraging process as well”.
“Indeed, China’s central bank cut the reserve requirement ratio (RRR) last week and conducted a large amount of reverse repos before the Chinese New Year, indicating that the central bank has engaged into aggressive easing to head off the deflation risk,” he said.
Mr Liu expects China’s central bank to follow up there words with actions by lowering the deposit rate by 25 basis points in the first quarter, followed by another 50 basis points RRR cut in the second quarter.
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