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Central Bankers Want Unemployment Rate to Rise to Control Inflation

Inflation is a hot topic these days, and central bankers around the world are under pressure to bring it under control. One of the tools they have at their disposal is interest rates. By raising interest rates, central banks make it more expensive for businesses to borrow money, which slows down economic growth. This, in turn, can help to reduce inflation.

But there is a trade-off. When interest rates rise, businesses are less likely to hire new workers, which can lead to higher unemployment. This is why central bankers often face a difficult choice: do they raise interest rates to control inflation, even if it means higher unemployment?

In Australia, the Reserve Bank of Australia (RBA) has been clear that it is willing to tolerate higher unemployment in order to bring inflation under control. In a speech in February 2023, Deputy Governor Michele Bullock said that the RBA “expects unemployment to rise to around 4% by the end of 2023.” This would be a significant increase from the current unemployment rate of 3.5%.

Bullock argued that the higher unemployment rate is necessary to “slow the growth of wages and prices.” She said that “if we don’t do this, inflation will continue to rise, and that would be bad for everyone.” This analysis has been updated today:

Australia’s unemployment rate needs to rise to help contain inflation and avoid higher interest rates and a deep recession, a top central banker warned on 20 June, after data showed little loosening in a still drum-tight labour market. Reserve Bank of Australia (RBA) Deputy Governor Michele Bullock said the jobless rate would need to rise to about 4.5% from the current rate of 3.6% to bring the economy back into balance, a rate still well below pre-pandemic levels.

Reuters News Agency 20 June 2023

The RBA’s decision to tolerate higher unemployment is a controversial one. Some economists argue that the RBA is putting too much weight on inflation and not enough on unemployment. They argue that the RBA should focus on keeping unemployment low, even if that means allowing inflation to rise a little bit.

Other economists argue that the RBA is right to focus on inflation. They argue that high inflation can have a devastating impact on the economy, leading to lower economic growth, lower living standards, and even social unrest.

The debate over the RBA’s decision is likely to continue for some time. But one thing is clear: the RBA is willing to tolerate higher unemployment in order to bring inflation under control.

How many people are unemployed in Australia?

As of March 2023, there were 586,200 people unemployed in Australia, according to the Australian Bureau of Statistics (ABS). This represents an unemployment rate of 3.5%.

The unemployment rate is calculated by dividing the number of unemployed people by the number of people in the labor force. The labor force includes everyone who is either employed or unemployed.

The unemployment rate has been declining in Australia in recent years. In March 2020, the unemployment rate was 5.2%. The decline in the unemployment rate is due to a number of factors, including strong economic growth and low interest rates.

What is considered full employment?

Full employment is a situation in which everyone who wants a job can find one. There is no one agreed-upon definition of full employment, but it is generally considered to be an unemployment rate of around 4%.

The ABS defines full employment as “the lowest rate of unemployment consistent with the maintenance of price stability.” This means that the unemployment rate at full employment is the rate at which inflation will not rise.

The unemployment rate at full employment varies from country to country. In Australia, the unemployment rate at full employment is estimated to be around 4%.

The trade-off between unemployment and inflation

There is a trade-off between unemployment and inflation. When unemployment is low, inflation tends to rise. This is because when there are more people employed, they have more money to spend, which drives up demand. As demand rises, businesses raise prices to cover their costs.

Conversely, when unemployment is high, inflation tends to fall. This is because when there are fewer people employed, they have less money to spend, which drives down demand. As demand falls, businesses lower prices to attract customers.

The RBA’s decision to tolerate higher unemployment in order to bring inflation under control is based on the belief that the trade-off between unemployment and inflation is not symmetrical. In other words, the RBA believes that the negative consequences of high inflation are greater than the negative consequences of high unemployment.

The RBA’s decision to tolerate higher unemployment in order to bring inflation under control is a controversial one. But it is a decision that is based on the belief that the trade-off between unemployment and inflation is not symmetrical. The RBA believes that the negative consequences of high inflation are greater than the negative consequences of high unemployment.

Only time will tell whether the RBA’s decision is the right one. But one thing is clear: the RBA is willing to take a risk in order to bring inflation under control.

Australian economy review and risk analysis to inform business leaders about the risks of doing business in and with Australia
Australia’s central bankers want unemployment to rise to control inflation

More articles:

How many people are unemployed in Australia?

What is considered full employment?

Challenges of Doing Business in Australia

Australia is a developed country with a stable economy and a strong legal system. However, there are some challenges that businesses may face when doing business in Australia.

Cost of living

The cost of living in Australia is high, especially in major cities like Sydney and Melbourne. This can be a challenge for businesses, as it can make it difficult to attract and retain employees.

Regulations

Australia has a number of regulations that businesses must comply with. These regulations can be complex and can be a challenge for businesses to understand.

Distance

Australia is located far from other major markets. This can make it difficult for businesses to export their products or services.

Workforce

Australia has a strong workforce, but there are some challenges that businesses may face when finding skilled workers. For example, there is a shortage of engineers in Australia.

Competition

Australia is a competitive market, with many businesses competing for customers. This can make it difficult for businesses to establish themselves in Australia.

Despite these challenges, Australia is a great place to do business. The country has a strong economy, a stable political system, and a well-educated workforce. Businesses that are able to overcome the challenges of doing business in Australia can be successful in this market.

Here are some tips for doing business in Australia:

  • Do your research

Before you start doing business in Australia, it is important to do your research. This includes understanding the Australian market, the regulations, and the competition.

  • Get legal advice

It is important to get legal advice before you start doing business in Australia. This will help you to understand the local laws and regulations.

  • Partner with a local business

Partnering with a local business can be a good way to overcome some of the challenges of doing business in Australia. This can help you to understand the local market, to comply with local laws and regulations, and to access local resources.

  • Be prepared to invest

Doing business in Australia can be a costly endeavor. You will need to be prepared to invest in your business, including in marketing, research, and development.

  • Be patient

It takes time to establish a successful business in Australia. Be patient and persistent, and you will eventually be rewarded for your efforts

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18 August 2022 – Figures from the Australian Bureau of Statistics out on Thursday showed the jobless rate dipped to 3.4%.

Australia’s jobless rate in July dropped to lowest since August 1974.

Australian wages are rising 2.7% compared to inflation of 6.1%.

27 July 2022 – Australian inflation jumped to highest rate since 2001 last quarter and is likely to accelerate even further.

Data from the Australian Bureau of Statistics showed the consumer price index (CPI) running at 6.1 percent jumping from 5.1 percent.

Australian standard of living is falling not rising as wages are not even nearly catching up with the cost of living in Australia.

Australia’s central bank fell asleep at the wheel like many other central banks around the world. It dithered when it should’ve acted more proactively to mitigate inflation in Australia. There is an argument that central banks around the world coordinated their lack of action on rising inflation. Partly, the intention, was to use inflation to combat the ridiculous money printing valuations globally. There are more worrying reasons which can be put forward for deliberate inaction by central banks.

14 July 2022 – Australia lowest employment rate since August 1974

Australia business magazine
Australia lowest employment rate since August 1974

5 July 2022 – Reserve bank of Australia increases interest rate for third time in three months July 2022

Quickest quantitative tightening by Reserve Bank of Australia RBA. Australia’s central bank delivered its first ever consecutive half-percentage point interest-rate hike and Governor indicates near doubling is “not unreasonable”, so could go higher yet. interest rates will go higher in August. Money markets in Australia are anticipating an increase to 3.2 percent is not unreasonable.

Australia business magazine
Reserve bank of Australia increases interest rate for third time in three months July 2022

30 June 2022 – Cost of a mortgage in Australia soars despite assurances interest rates not rise until 2024 and Australian house prices are falling.

Commonwealth Bank of Australia, with a quarter of Australia’s mortgages, pushed up fixed rate mortgage by 1.4 percent. Australia and New Zealand Banking Group Ltd, the fourth-largest lender, hiked fixed-rate loans by 0.9 percent. Smaller lender HSBC, also raised its fixed-home rate by 1.5 percent. The increase to fixed rate mortgages in Australia reflects the fact that the Reserve Bank of Australia RBA is rapidly increasing interest rate to desperately try to dampen inflation in Australia.

Homeowners in Australia had been told by RBA interest rate would not rise until 2024. Lenders can see from two interest rate rises since May and another increase likely next week, the trend is upwards and this makes fixed interest rate mortgages more expensive for lenders and subsequently borrowers. Higher costs of borrowing is causing Australian house prices to fall.

30 June 2022 – Australia unemployment fell to lowest in 50 years at 3.9 percent in May.

Although unemployment rate is low job vacancies are at all time high. In May there were half a million job vacancies in Australia, double the number of job vacancies prior to the pandemic. Job vacancies are increasing despite likelihood of global recession in 2023.

Near full employment tends to push up inflation and interest rates to cool inflation. The Australian central bank, the Reserve Central Bank of Australia RBA has increased interest rates twice since May to 0.85 percent. Another increase in July is already priced in next week.

21 June 2022 – Australia’s central bank acknowledges central banks can overstimulate economy.

The Australia central bank decided to raise interest rates by a larger 50 basis points this month because policy would still be very stimulative and it needed to be normalised to stop high inflation becoming entrenched.

Minutes of its June 7 Board meeting, showed the Reserve Bank of Australia (RBA) discussed lifting the 0.35% cash rate by 25 basis points or 50 basis points and chose the latter as inflation had already outpaced all expectations. Do the Bank of England or ECB think their lack of action on interest rate overstimulated their economy’s? If they had acted sooner and or more aggressively with interest rate increases could they have tempered inflation and maybe avoided some wage expectations, inflationary pressures, social unrest?

7 June 2022 – Australia’s central bank raised interest rates by the most in 22 years and reported more quantitative tightening QT.

The Reserve Bank of Australia (RBA) increased its cash rate by 50 basis points to 0.85 percent, more than financial markets expected.

The central bank had already lifted rates by a quarter point in May, the first increase since 2010, and many had thought it would stick to quarter-point moves. The last time it hiked by more was in early 2000.

Due to inflationary pressures further 50bp interest rate hikes can be anticipated. Many experts are expecting Australian interest rates to continue increasing and settle at around 2.5 percent by 2022. This may not sound like a lot but is a potential 3x increase in interest rate repayments in loans, for example. Other financial market watchers think interest rates may have to go higher as runaway inflation accelerates in 2022.

House prices in Australia are already under pressure to fall before a potential tripling of mortgage interest element of monthly mortgage payments. The Australian consumer is as pessimistic about the future of the Australian economy as the height of the pandemic. Lack of consumer confidence and less discretionary spending will hit corporate earnings and profitability.

3 May 2022 – Australia central bank bumps up interest rates by 25bp to 0.35 percent.

Australia central bank, Reserve Bank of Australia RBS said around a month ago that it did not anticipate a need for interest rates to increase until 2023 or even 2024. Today its announced it needs to increase interest rates! Not only that, but the increase of 25bp is much faster rise than could have been expected. Furthermore, Australia central bank says there are more interest rate rises in the pipeline in the months ahead.

What prompted such a rapid about turn on interest rate policy? Why the handbrake turn? Why have they panicked? Was their previous statement political to protect Scott Morrison?

  • The central bank forecast for 2022 is headline inflation will accelerate to around 6 percent and core inflation to around 4.75 percent.
  • By mid-2024, headline and underlying inflation are forecast to have moderated to around 3 percent.
  • Australian GDP is forecast to grow by 4.25 percent over 2022 and 2 percent over 2023.
  • Unemployment is predicted to decline to around 3.5 percent by early 2023, the lowest level in half a century.

The RBA said it will also begin Quantitative Tightening QT by not reinvesting the proceeds of bonds that mature in coming months. This will eventually also remove cheap money sloshing about the Australia economy. By the end of 2022 money in Australia will no longer be cheap.

1st May 2022 – Qantas Airways Ltd is set to announce a landmark order for Airbus SE A350-1000 jets capable of nonstop flights from Sydney to London as part of a wider deal with the European planemaker, industry sources told Reuters.

The forecast is that the mew service will begin in 2025.

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Lessons for the people of Australia and around the world from last couple years of covid-19 pandemic risk management.

Why did governments around the world inflate perception of risk from Covid-19 by inflating numbers of people dying from covid with people who just happened to have covid when they died.

Early-on, in the middle and near the end, Australian politicians, Australian media and Australian medical and health professionals collaborated to inflate the risk of dying from Covid. They are relatively open about it now you have been controlled into doing what they want including taking experimental vaccine and accepting movement restrictions.

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Covid-19 epidemiology report Australia Incidental Covid
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Australian Products and Services Getting Noticed More Often

Do you have a product or service which will sell sooner or later though you would prefer it to sell sooner! Every time one of your competitors makes a sale its a sale you’ve lost for your business. Do you find yourself frustrated that your business is better than most but other businesses seem to make more sales? What would it be like if you could get your business face in front of more potential buyers? The more you think about it the more you realise you need to do more to promote your business more profitably.

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27th April 2022 – Annual Inflation In Last Quarter To 5.1 Percent, Highest Since 2001

The Reserve Bank of Australia RBA has a target of 2 to 3 percent for healthy inflation.

Australian interest rates are at an emergency low of 0.1 percent and the markets expect interest rates to rise to 0.5 percent by June 2022 in one big jump or two movements in May and June, to try to restrict inflation.

14th April 2022 – Australia’s unemployment rate held at a 13-year low in March.

Australian Bureau of Statistics reported Australian jobless rate of 4.0 percent.

There are currently a record high number of job vacancies in Australia at close to half a million unfilled jobs.

Many financial experts are forecasting several interest rate increases to combat rising inflation.

10th April 2022 – Who will win Australia general election on 21st May 2022? What could the result mean for business and economy in Australia?

17th December 2021 – UK Signs Free Trade Deal With Australia

The UK government hopes the Australian trade deal opens the gate to joining the Trans-Pacific Partnership region, which is one of the largest and fastest growing free trade areas in the world.

For Australia the new free trade deal is the second-largest trade contract it has signed with a single other country. The free trade deal comes into force next year and will eliminated vast majority of tariffs on exports from Australia to the UK. It will also make it easier for Australians to live and work in the UK. It will be cheaper to export goods and some services to UK.

Some UK professionals like lawyers, accountants and researchers will be able to work in Australia without being subject to Australia’s skilled occupation list.

Australian Banking Scandal
Australian Banking Scandal

Westpac bank has negotiated to pay a record 1.3 billion dollar fine for breaching money laundering laws

Westpac failed to adequately report over 19 million international transactions. Some payments were potentially linked to child exploitation. If the negotiated fine for money laundering rule breaches is approved by a court in Australia it will be the largest civil penalty in Australian corporate history.

Global travel will not resume until mid-2021 Qantas boss says
The boss of Qantas thinks Australia will be closed for international travel until mid 2021 at earliest and for some highly infected countries like USA Australia may not accept its citizens for even longer if no vaccine is found.

The boss of Qantas thinks Australia will be closed for international travel until mid 2021 at earliest and for some highly infected countries like USA Australia may not accept its citizens for even longer if no vaccine is found.

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Sailing Brisbane to Perth the Long Way Round Two Australians and A Pomme

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