Analysts at Westpac Banking corporation noted that in the absence of any data, RBA discussion of the labour market has been the focus.
“Following the unemployment rate’s jolt lower to 5.0% in September, historically the benchmark for ‘full employment’ in Australia, Deputy Governor Debelle remarked this week that “We [the RBA] have an open mind on the question of what actually constitutes full employment”.
Westpac’s own view is that the unemployment rate consistent with full employment is actually likely to be well below the current 5.0% figure, hence wage growth and inflation are unlikely to pick up anytime soon. This fits with the experience of the US where, with the unemployment rate now a percentage point below historic estimates of ‘full employment’, wages are only just starting to accelerate robustly.
Looking ahead, we see the Australian unemployment rate holding near 5.0% through 2018 and 2019, and hence wages growth and inflation remaining benign.
The next key update for Australia will be the September quarter CPI report, due next week.
On all fronts, it is expected to highlight the absence of inflation pressures and justify the RBA remaining on hold through 2019 and 2020.”