Five key takeaways from the Reserve Bank’s latest monetary policy statement
The unemployment rate is rising at a slower pace than the Reserve Bank previously forecast and is expected to reach a high of 4.3 per cent by the middle of next year.
The Reserve Bank said a lot of the easing in the labour market had been through a decrease in average hours worked and a reduction in job vacancies.
“Firms have reduced labour demand more so by hiring fewer additional workers rather than laying off staff,” the bank said.
“Job advertisements and vacancies have continued to decline but remain above their pre-pandemic levels.”
That’s helped keep wage growth solid, and the wage price index reached 4.2 per cent in December, but the Reserve Bank believes that is now around its peak and is likely to start easing.
The bank, along with most economists, has been surprised by the strength of the jobs market, which has barely climbed despite the Reserve Bank’s big increases in interest rates.
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Households are struggling, but many are also saving more
Australian households have faced a huge increase in interest payments on mortgages, driving total household debt payments to highs not seen since 2010-11.
That has put pressure on budgets, and many households have reduced their spending – particularly on non-essentials – as a result.
But not all households have a mortgage, and for those without (particularly wealthier households) higher interest rates have encouraged people to save more, and savings rates are now a little above the pre-pandemic average.
Economic growth remains soft
Thanks largely to falling household spending, Australia’s economic growth slowed over 2023 and remains subdued.
The Reserve Bank downgraded its forecasts for growth, to 1.2 per cent in June and 1.6 per cent by December, from previous expectations of 1.3 per cent and 1.8 per cent respectively.
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The bank said high inflation, strong tax payment growth and higher interest rates had reduced disposable incomes and household spending had been pulled back as a result.
Those effects will keep a damper on household spending, which in turn will keep economic growth low.
There’s a chance of one more rate rise – but many economists still expect a cut this year
Higher than expected inflation in March and a strong jobs market led financial markets to price in one more interest rate rise this year.
