Unemployment rises to 4.6 per cent for first time in five years

Unemployment has risen to 4.6 per cent for the first time in almost five years just days after Reserve Bank governor Michele Bullock said the jobless level would have to climb to bring down inflation.

The jobless rate in August was the highest since November 2021, when Sydney and Melbourne were in COVID lockdown, and is at the edge of what economists regard as full employment.

Last month, 28,200 people lost their job and Australians worked 14 million fewer hours.

This occurred as the number of full-time jobs fell by 6300 as part-time employment rose by 45,800.

The Reserve Bank in August predicted unemployment would not reach 4.6 per cent until June 2027 but last month, it rose to that level from July’s 4.5 per cent rate 10 months earlier than predicted.

Victoria had the nation’s highest jobless rate of 5.2 per cent in August, followed by Tasmania on 5 per cent, South Australia on 4.6 per cent and the commodities-rich states of Queensland and Western Australia both on 4.5 per cent.

NSW had the lowest jobless rate of 4.3 per cent, despite being home to Sydney, Australia’s most expensive property market that is also experiencing the sharpest drop in house prices.

The Australian Bureau of Statistics data was released on Thursday, two days after Ms Bullock signalled higher unemployment was the price of bringing down inflation, with the RBA this year hiking rates three times amid expectations of more monetary policy tightening.

“So it might be, again, another difficult issue for the Reserve Bank in terms of this as another supply side thing, worsening the trade-off potentially between inflation and unemployment,” she said.

Australia’s most powerful central banker signalled the non-accelerating inflationary rate of unemployment - known as the NAIRU - was likely to be higher than thought, meaning more job losses as the RBA hiked interest rates to bring down inflation.

“In technical terms, the NAIRU might be higher for a while, which means that for any given inflation rate, we have to tolerate a higher unemployment rate,” she said.

“So high unemployment is not great. What can we tolerate? The way it sort of works technically is that, and I don’t like to talk about this NAIRU, but there is certain levels of unemployment that if you go below that level of unemployment, it introduces a lot of pressure in the labour market, and that can put upward pressure on wages and prices because it puts pressure on costs for businesses, that finds its way into prices.”

Inflation in July was above the RBA’s 2-3 per cent target for the 12th straight month and any further rise in unemployment would see the Reserve Bank simultaneously failing its dual mandates on price control and the labour market.

Australia’s big four banks are expecting the Reserve Bank to raise interest rates on Tuesday next week which would take the cash rate to a 15-year high of 4.6 per cent.

The futures market regards a hike as an 86 per cent chance.