Today’s decision by the RBA to further raise the cash rate will place undeniable financial pressure on Australian households. Combined with the Budget’s forecast rising prices on everyday goods, housing and energy, and lacklustre wages growth, this latest increase in the cash rate all but guarantees consumer confidence will weaken as we enter the busy Christmas retail period.
Data and forecasts released in the latter half of October all point to difficult economic conditions in 2023. The RBA board will likely have carefully considered labour force data, which showed that the unemployment rate has stagnated at 3.5%, employment growth has slowed dramatically, and job vacancies have stopped rising.
Data from employment marketplace SEEK also points to a slowdown in jobs growth, with job ads declining month on month for four months now, and by 5.2% over September 2022, the largest decline all year. And in a sign that increasing migration is starting to help employers fill more roles, there was a 10.3% increase in applications for job ads month on month, the greatest rise since April 2020.
The RBA has a dual role to maintain inflation within the target band of two and three per cent and also maintain full employment. Clearly, those two aims are incompatible in the current environment, as it will be almost impossible to bring inflation back to the target band if employment remains ‘full’. As a result, the RBA will be relieved to see the labour market slowing, as it is essential to helping it get inflation back under control.
It is likely given all signs are pointing to a weakening economy, that the RBA will take slower steps in tightening monetary policy, as it tries to avoid sending Australia into recession. Despite continuing very strong business sentiment, CreditorWatch data reveals businesses are starting to feel more financial pressure, with B2B trade defaults and court actions rising on a trend basis.
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