Editorial courtesy of The Australian.
17.10.2025
If a week is a long time in politics, it can be an eternity in the life of a central banker. One minute Reserve Bank of Australia governor Michele Bullock was warning about the dangers of resurgent inflation, the next we are worried about a spike in unemployment.
As a result, there are mixed signals on the strength of the economy and the future of interest rates.
The RBA’s caution at its last board meeting about building inflationary pressures has been tempered by a jump in the unemployment rate to 4.5 per cent, its highest level in almost four years.
Economists are now revising their assumptions on what the RBA’s next move will be. A majority expect the RBA to cut rates further at its November meeting. If it does, this will be a turnaround from sentiment contained in the RBA’s minutes of its September 29-30 monetary policy meeting. At that time, the view was that stronger-than-expected price hikes in the labour-intensive services sector and housing construction risked derailing the central bank’s inflation forecasts.
Assistant governor Sarah Hunter confirmed in a speech on Wednesday that the RBA was weighing mixed signals of robust domestic demand fuelling inflation on one hand, and easing employment gains on the other. The situation is further complicated by global uncertainty as Donald Trump and Xi Jinping open up new fronts in their trade war.
The big message from Ms Hunter’s speech, however, was that slower productivity growth is limiting how quickly wages can rise and how fast the economy can expand. This is where the federal government’s focus must be.
Inflationary pressures risk being stoked by government actions, including a new scheme that allows borrowers to get into the housing market with a reduced deposit as taxpayers take the mortgage insurance risk.
Burdensome labour rules detract from productivity, and high levels of government spending continue to crowd out the private sector.
Ms Bullock made a valid point in her comments to a Nomura Research Forum conference in Washington on Wednesday.
“If we can’t make the budget stronger during this period while the economy is doing quite well and there’s lots of people employed, then what happens in the next downturn?” she said. As things stand, the RBA will increasingly be forced to tread a fine line to accommodate trade union demands to protect jobs at the risk of making the inflation pressures worse.
