There is a big, fat elephant in the room.<\/p>\n
The federal government insists it has devoted considerable resources toward fighting inflation.<\/p>\n
The Reserve Bank pushed interest rates up at quite the clip to ensure it did what was necessary to keep inflation from running away.<\/p>\n
And yet, this week, underlying or core inflation, having gradually declined over the past three years, turned around, and headed back up.<\/p>\n
All fingers pointed toward the rising total cost of electricity, despite the existence of some rebates.<\/p>\n
What Australians really want though, is for their bills to stop climbing.<\/p>\n
What will that take?<\/p>\n
Necessary pain?<\/p>\n
The Commonwealth Bank has an answer to that question.<\/p>\n
“We expect it would take a material move higher in the unemployment rate, together with more moderate inflation prints, to bring the RBA back to the cutting table,” the CBA said in a note.<\/p>\n
Inflation kills rate cut hopes<\/a><\/p>\n A November rate cut is dead, buried and cremated. It now looks far from certain that interest rates will fall again at all.<\/p>\n In 2023, not long before Michele Bullock become governor of the Reserve Bank, she made remarks to that effect.<\/p>\n At the time the unemployment rate was sub 4 per cent, and the thinking was that the jobless rate probably needed to climb to about 4.5 per cent to ease pressure on inflation.<\/p>\n The unemployment rate is now there, while the now RBA governor says the labour market remains “a little tight”.<\/p>\n It suggests unemployment may need to move higher from here for inflation to fall further.<\/p>\n At the same time, Ms Bullock, at a gathering of economists this week, downplayed the recent increase in the unemployment rate, indicating that it [the September spike in the jobless rate] might just be part of the normal monthly volatility.<\/p>\n Either way, it presents unemployment at 4.5 per cent as perhaps a little too low for a core inflation rate of 2.5 per cent, which is the mid-point of the RBA’s inflation target band of between 2 per cent and 3 per cent.<\/p>\n Opaque jobs market<\/p>\n So the trillion-dollar question for the economy is whether the unemployment rate will continue to ratchet higher.<\/p>\n If it does, inflation should fall again.<\/p>\n Annual job growth has more than halved from January’s 3 per cent annual pace, and is now below the RBA Board’s December 2025 forecast of 1.6 per cent.<\/p>\n Leading indicators of labour demand have signalled a gradual loosening of the labour market.<\/p>\n Loading…<\/p>\n And NAB’s measure of employment conditions fell by 2 points to +3 points in September \u2014 consistent with a loosening of the labour market.<\/p>\n Earlier this month, data from ANZ Bank and employment website Indeed showed the number of job ads fell by 0.3 per cent in September from August.<\/p>\n That is the steepest decline since February 2024.<\/p>\n Job ads in September were also down 4.3 per cent on the same month last year.<\/p>\n “Job ads have now declined for three consecutive months after holding broadly steady for over a year, suggesting labour market conditions are beginning to ease,” said Aaron Luk, an economist at ANZ.<\/p>\n Economists at the Commonwealth Bank think the jobless rate will basically hold steady where it is at, 4.5 per cent, but there is a risk it will rise.<\/p>\n “Unemployment will remain around current levels and inflation will gradually subside,” the bank said.<\/p>\n “However, the latest data has tilted the risks to the upside.”<\/p>\n The problem is that none of this is definitive.<\/p>\n At the same time, wage growth remains a little too strong for businesses, or so they say.<\/p>\n Wages squeezing business<\/p>\n We know from the NAB’s latest quarterly business survey that businesses are facing rising costs \u2014 largely to do with rising wages, and margins remain under pressure.<\/p>\n So, as long as businesses experience tight margins, there will be pressure for bosses to pass on wage increases to customers.<\/p>\n