Strong employment figures set the scene for higher interest rates

The surprising fall in unemployment figures (national unemployment down from 5.5% to 5.3% in January) has caught almost everybody off guard. The consensus amongst economists prior to the announcement was that Australia’s unemployment rate would rise to 5.6%.

The rate of unemployment has fallen now for three straight months on a seasonally adjusted basis after bouncing between 5.7% and 5.8% between May and October last year. The trend certainly suggests that unemployment has peaked significantly lower than the 6.75% forecast by the Federal Treasury June this year.

On a state by state basis the rate of unemployment shows some variance. Of the Australian States, South Australia is recording the lowest rate of unemployment at just 4.4% while the highest jobless rate is in New South Wales with 5.6% unemployed.

While the news is great that more people have a job, the flipside remains that the Reserve Bank is likely to respond with further interest rate rises. Low unemployment leads to wage pressures, improved confidence and greater consumption – all of which will fuel inflation and give the RBA cause to continue lifting interest rates.

Source: http://blog.rpdata.com/