Aus unemployment rate to remain elevated

ANZ is wary of reading too much into the July labour force report. We note it was an odd jump in the unemployment rate, at least partly due to statistical issues.

But ANZ expects the unemployment rate to stay elevated for some time with little significant improvement until 2016.

The weakness in the unemployment numbers in July is difficult to reconcile with a range of other labour market indicators: job ads/vacancies measures and labour market indicators from the business surveys have been improving, albeit gradually, while average hours worked are trending modestly higher.

This week’s post Board meeting press release and Statement on Monetary Policy (SoMP) from the Reserve Bank confirmed the RBA remains firmly on hold, with both statements repeating the bank’s recent mantra “the most prudent course is likely to be a period of stability in interest rates”. The statement confirms ANZ's view the cash rate will remain on hold for some time yet and the first expected rate hike in the next tightening cycle will come in May next year.

The RBA slightly downgraded both growth and inflation forecasts. It now expects growth to be slightly lower and remain below trend for a little longer than previously thought. ANZ continues to expect modest wages growth to keep underlying inflation comfortably within the target band.