Australia central bank says labour market has stabilised, consistent with inflation pressures

SYDNEY, Feb 12 (Reuters) – Australia’s labour market has stabilised from a slowdown and remains tight, consistent with stubborn inflationary pressures in the economy, a senior central bank official said on Thursday.

Sarah Hunter, assistant governor at the Reserve Bank of Australia, said the central bank was closely monitoring conditions in the labour market to help assess how much the pick-up in inflation could be temporary.

“Dynamics in the economy have evolved somewhat in recent months, and our full employment framework and NAIRU framework indicate that the labour market has stabilised recently and remains a bit tight,” said Hunter in a speech in Perth.

“The overall picture of persistent tightness is important because, like the entwined double helix, it is consistent with there still being some inflationary pressure in the economy.”

The RBA raised its cash rate last week by a quarter point to 3.85%, reversing one of the three cuts made last year. Underlying inflation picked up to 3.4% last quarter, the fastest pace in over a year and was expected to hit 3.7% this year, based on the RBA’s own forecasts.

The central bank does not expect much easing in the labour market from here while tipping inflation to remain above the target band of 2%-3% for quite some time. That was a key reason behind Governor Michele Bullock’s warning on Thursday of more rate rises if inflation becomes entrenched.

Recent data has reinforced the case of a capacity-restrained economy, with a surprise fall in the unemployment rate to a seven-month low of 4.1% in December suggesting the labour market may have started to tighten again.

Hunter said much of the slowdown over the last few years has been through a fall in job vacancies, fewer workers looking to change jobs and a slowdown in hiring by firms, rather than a rise in the unemployment rate.

(Reporting by Stella QiuEditing by Shri Navaratnam)