Unemployment rate falls to 3.6pc in September as analysts shift focus to quarterly inflation data

Treasurer Jim Chalmers has conceded inflation figures due next week — crucial to the Reserve Bank’s next determination on interest rates — may be higher than hoped due to pressures on global oil prices.

Echoing comments on Wednesday from RBA governor Michele Bullock, Dr Chalmers on Thursday said intensifying conflict in the Middle East put greater risks into the global economy and further pressure on oil prices.

“We expect in the inflation figures next week that we will see some of the first part of that elevated global oil prices reflected,” he said at a press conference in Canberra.

“Since then, obviously, conflict in the Middle East introduces and element of uncertainty within the global economy because it runs the risk of putting upward pressure on oil prices.”

The RBA also looks at a measure of inflation that removes price movements in volatile items like petrol and food, but that has remained under pressure as services demand remains high.

Quarterly inflation is now at 6 per cent and the RBA is hoping via its interest rate hikes since May last year to push it to between 2 and 3 per cent, its long-held target. It does not expect this to occur until 2025 but this week said its tolerance for inflation taking too long to return to target was limited — sparking concern it may hike rates at its November meeting on Melbourne Cup Day by 0.25 percentage points to 4.35 per cent.

The inflation reading has grown in importance for the RBA’s considerations after unemployment figures on Thursday showed a decline in the jobless rate to 3.6 per cent, driven by a fall in people in the labour force.

“Even if the inflation report is not a lot worse than expected, the RBA could still raise rates next month out of concern with runaway house price growth and headline inflation remaining ‘higher for longer’ due to the lift in petrol prices,” Betashares chief economist David Bassanese said.

The unemployment data would usually suggest the RBA would keep rates on hold next month, EY senior economist Paula Gadsby said, but risks remain of a pre-Christmas rate hike.

“Risks of a wage spillover remain, given the tight labour market and low productivity, while stubborn services inflation and rising oil prices could keep inflation higher for longer,” she said.

Dr Chalmers said “softening around the edges” of the labour market was to be expected. WA’s unemployment rate fell from 3.8 per cent to 3.3 per cent, with a fall in the number of people employed (by 0.2 per cent) and workforce participation (down 0.7 percentage points).

“The story of our labour market is one of remarkable resilience but it is beginning to soften around the edges,” he said.

“We start from a quite remarkable position as we confront the global and domestic economic uncertainties ahead.”

AMP deputy chief economist Diana Mousina said strong population growth meant the working-age population was increasing by about 56,000 per month — but to keep the unemployment rate changed, jobs growth needed to increase about 37,000 per month.

“While there is no specific explanation for why there was a rise in people leaving the workforce in September, this can occur in a slowing labour market if there are ‘discouraged job seekers’ and cannot find employment prospects — but there are also other reasons for people leaving the workforce,” she said, adding most people not in the labour force either did not look for work or were retired.

“The softening in the labour market is occurring slowly,” she said, adding another rate hike would be “a policy mistake”.

“But the slower than expected slowing of jobs growth does mean some upside risks for near-term wages growth, which could concern the RBA.”

Ms Bullock earlier this week said the RBA was aware the full impact of rate hikes to date were not yet being felt.

CreditorWatch chief economist Anneke Thompson said discretionary retailers — which employ a large proportion of staff by the hour — were being affected by low consumer confidence and higher rates.

“It is therefore not surprising that hours worked is starting to fall,” she said. “The construction sector also is a large employer of casual labour, and the slowdown in building approvals is also starting to bite this sector.”

Westpac associate economist Ryan Wells said the data suggested employers were less willing to provide hours but were not yet materially cutting workforces.

“This provides another signal that the Australian labour market is at a turning point – no longer tightening, but it is yet to slacken by a significant degree,” he said.

ANZ head of Australian economics Adam Boyton said the unemployment data pointed to a cooling labour market, irrespective of the decline in the headline figure.

“Given the slowdown in economic activity which appears to have continued through the September quarter, yearly growth in employment and hours worked should cool materially over coming months,” he said.

“The unemployment rate is still likely to have seen its low for the year, although increases from here should be modest.”