RBA signals 5% unemployment target
- Reserve Bank of Australia governor flags higher unemployment target to cool stubborn inflation.
- Financial markets now price in a cash rate increase to 4.6% at the upcoming September meeting.
- The central bank aims to anchor long-term price expectations by absorbing excess heat from the labour market.
Reserve Bank of Australia Governor Michele Bullock stated that the national unemployment rate must rise to between 4.5% and 5% to successfully rein in persistent inflation.
This explicit target contrasts with previous Treasury estimates placing the non-accelerating inflation rate of unemployment at 4.25% and recent trade union calls for full employment at 4% or lower.
"I think an unemployment rate between 4.5% and 5% will probably take enough heat out of the labour market that it’ll ease pressure on inflation," said Reserve Bank of Australia governor Michele Bullock.
A shift to 5% unemployment would require approximately 83,000 additional people to become jobless, assuming the overall size of the active workforce remains steady.
Following the announcement, bond markets fully priced in a cash rate increase to 4.6% at the next central bank board meeting.
The central bank currently forecasts national economic productivity growth at 0.7% by December 2028 while monitoring potential workforce shifts from emerging artificial intelligence tools.
Meanwhile, federal Treasury forecasts project Australia's overall labour force participation rate to gradually trend upward towards a peak of 67.7% by 2040.
