The week that was
It was, frankly, a dreadful labour force release with employment up just 4,900 in March after it fell 6,300 in February. All of a sudden, the Australian economy has stopped generating jobs. Making matters more problematic, full time employment has fallen by a total of 7,500 since December and the unemployment is stuck at 5.5 per cent, basically where it was in May 2017.
The jobs number fits with the scenario of the economy just muddling along with overall economic growth tracking a little below trend and in need of a boost. Strangely, the RBA has been ignoring the hard data on the economy and focussing on its rose coloured forecasts by suggesting the next move in interest rates is likely to be up. The jury is well and truly out on this forecast with any further weakness in the labour market in coming months seeing it change its view and moving to cut interest rates.
The week ahead
All pumped up about inflation!
The March quarter consumer price index is released next week and it is all but certain to confirm yet another quarter where the RBA has missed its inflation target. The general market view is for the CPI to rise 0.5 per cent for an annual increase of 1.9 per cent. The annual increase in underlying inflation is also forecast to rise by 1.9 per cent. Recall, the RBA has a target for inflation of 2 to 3 per cent.
In a series of recent speeches, RBA officials have indicated that the inflation target has been subsumed, at least temporarily, by concerns about financial stability risks, growth in household debt and house prices. This is why the RBA has not eased monetary policy even though the miss on inflation would normally demand lower interest rates. The recent labour force data only reinforce this view.
Ahead of the CPI, the futures market is pricing in about a 40 per cent chance on a 25 basis point interest rate cut by December and does not have a full 25 basis point cut priced in until the middle of 2019. A shock result for the March quarter CPI on top of the recent shock in the labour market may change that.