The week that was
Yet another good result on the labour force with employment up a tidy 19,800 in September and the unemployment rate easing to 5.5 per cent, equal to the May result, but a rate not bettered since early 2013.
The hope is that the pick up in employment will, in time, feed into a tightening in labour demand and with that, a lift in wages and with that, a lift in consumer spending. The jury is out on these links and as such, the market continues to price in just one 25 basis point interest rate hike over the next 12 months.
A note of cuation. The economists at Westpac noted that employment rose by 3.1 poer cent in the year to September which is inconsistent with the sluggesh rate of GDP growth evident so far in 2017. Indeed, with ‘normal’ productivity growth such jobs growth would be consistent with a GDP boom at around 4.5 per cent, inflation above 3 per cent and interest rates, well, some 200 or more basis points higher than today. The economists at ANZ agreed.
The week ahead
The September quarter CPI will take centre stage and it is likely to be a strong result. The general 15 to 20 per cent rise in household electricity and gas prices in the quarter will add around 0.5 percentage points to the headline CPI result. With a number of other government administered prices also rising from 1 July, ie, within the September quarter, the CPI is expected to increase by as much as 1.3 per cent in the quarter which will take the annual inflation rate to 2.5 per cent. It must be noted that some forecasters are looking for a much lower increase of around 0.7 per cent, even allowing for the electricity price jump.
Of course, these price changes are not linked to a strong economy which means the RBA will, as it usually does, focus on underlying inflation which is a measure that tries to assess inflation pressures that are linked to the business cycle. Underlying inflation will be much lower than the headline result, probably around 0.7 per cent in the quarter for an annual rise of 2 per cent.