Economists are pressing the RBA to prioritise unemployment data more and stop operating in “continual fear of inflation”

The Reserve Bank (RBA) has been pressed to prioritise unemployment data more and stop operating in “continual fear of inflation”.

It follows the RBA’s decision to leave the cash rate unchanged at 3.6 per cent as the  September quarter inflation figure was “notably higher than expected”.

“It’s just more proof that the Reserve Bank really gets spooked by anything to do with inflation and doesn’t at all when it comes to unemployment,” said the Australia Institute’s Chief Economist, Greg Jericho.

Speaking on the Australia Institute’s Dollars & Sense podcast, he noted, “There was a bigger than expected increase in inflation where we saw it get to 3.2 per cent.”

RBA Governor Michele Bullock signalled rates cuts could be over for a while as the central bank was blindsided by “one of its worst forecast errors since the inflation-targeting era began in 1993”.

“We didn’t consider cutting [the cash rate],” she said. “We basically just talked about holding and the reasons to hold and then discussed strategy moving out.”

“It’s this continual fear of inflation,” pointed out Mr Jericho, “which remember is still at 3.2% – they aim for 2% to 3%.

“Really, we are freaking out about this? Especially when we know that there’s all this weirdness going on with electricity rebates coming off and all that, and yet we’ve got unemployment rising slowly but rising.

“How about worrying about that as well?”

September’s labour force figures showed the unemployment rate went from 4.3% in July to 4.5% (seasonally adjusted) this quarter but the RBA’s quarterly Statement on Monetary Policy report expects it to remain stable.

“They’re basically saying it’s going to stay at [around] 4.4% for the next 2 ½ years, which is great,” said Mr Jericho dryly.

“They’re really taking the line that, ‘oh no, that jump in unemployment that was a bit of a blip and it’s all good’.

“All of the indicators on job vacancies and things like that suggest it’s not going to keep going up, even though it has kept going up pretty much for the last 18 months.

“Whereas inflation they’re like, “Oh yeah, that will go up a bit for the next year and then it will come down.”

New ABS figures shows monthly household spending continued to rise, increasing by 0.2% in September.

“They [the RBA] were saying, oh, the most recent data suggests this is ongoing and it wasn’t a blip.”

However, Mr Jericho warned on the Dollars & Sense podcast that the data can be deceiving.

“We did buy a bit more stuff but not as fast as we did in March and June,” explained Mr Jericho.

Importantly, he noted “the big jump in spending was on necessities” such as food, petrol and healthcare.

“The things you spend when you feel like you have some money to spend,” said The Australia Institute’s Senior Content Producer, Elinor Johnston-Leek.

Mr Jericho agreed, “There was actually a drop in spending on recreation, culture, sort of goods and services. So, sort of fun things,” he said while also noting “there was a drop in spending on restaurants and takeaway and dining out.

“So, it suggests people cutting back.”