In May when the RBA raised the cash rate for the third time in three consecutive meetings, journalist Michael Pascoe asked the Governor of the RBA, Michele Bullock, a question based on the Reserve Bank’s at the time prediction for unemployment to hit 4.7% in June 2028.
Fri 16 Oct 2026 15.15 AEDT
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In May when the RBA raised the cash rate for the third time in three consecutive meeting, journalist Michael Pascoe asked the Governor of the RBA, Michele Bullock, a question based on the Reserve Bank’s then-prediction for unemployment to hit 4.7% in June 2028. He asked:
“So if the forecast comes true and unemployment does go up to 4.7 per cent, that would be considered too high?”
Bear in mind that at the time the most recent figures the Bureau of Statistics had released showed unemployment was 4.3%.
Governor Bullock replied “No, I’m not saying it’s too high.”
Well we no longer need to wait until June 2028, because yesterday the ABS revealed that not only was unemployment 4.7% in September, their revised figures show that it hit that level in August. That’s a full 22 months earlier than the RBA predicted.
Now maybe that’s being harsh, because in August the RBA changed its projections and predicted unemployment would reach 4.7% in December next year. But hey they’re still 16 months ahead of schedule. That’s some excellent work. If only everyone else was a so good at reaching their goals.
If you think I’m being mean about the RBA wanting higher unemployment, well let me given you Governor Bullock’s statement in August:
“I wouldn’t like people to think that because we’re seeing a slowing, and a rise in the unemployment rate, that means that we have to reverse course. Actually, we need that.”
Actually. We. Need. That.
Ruminate on those words.
The Reserve Bank does not think rising unemployment is a reason to think about stopping raising rates or (god forbid!) cut them.
The Reserve Bank absolutely believes to the core of its operations that unemployment needs to rise, and the 4.7% is not even too high.
They believe this because they think there are too many people with jobs, which means that not only is there too much money being spent by people (because of all those wages) but also that workers feel too bold to ask for higher wages. This in turn will mean wages go up too fast and business will raise prices to cover the extra costs of paying workers.
They think that raising interest rates will mean mortgage holders (and renters whose rents invariably also rise) will have to spend more repaying their mortgage and so will have less money to spend on other things.
That then means business is slow in the shops and business owners not only don’t feel like they can raise prices too much, they also start cutting back on shifts and no longer employ new people. This not only raises unemployment but it makes workers more worried about asking for a pay rise and instead just feel glad they have a job.
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It’s a great theory.
But what if the cause of inflation is not due to too much money being spent and too few people out of work and wages growing too fast?
In September, the RBA raised interest rates. The very next day the August inflation figures were released. The entire cause of inflation in that month was petrol prices.
If we took away the impact of petrol prices, then overall inflation would actually have very slightly fallen in August. The second biggest driver of inflation in August was ‘Games, Toys and Hobbies’. If that sounds weird, just think AI and the cost of processing chips. The AI surge has massively increased the cost of those chips – and that applies not just for data centres but for computers, and games that people play that have those chips in them.
So the two biggest drivers of inflation are things utterly outside the control of the RBA. We can have as little money to spend as possible and that won’t affect the price of petrol one bit.
Is that giving the RBA any pause?
Sadly, no.
In the minutes of the RBA September meeting that were released this week, the board noted
“Members added that the Board’s task was to stabilise medium-term inflation at the target even if part of the medium-term persistence in inflation is driven by factors beyond the influence of monetary policy.”
And so they raised rates for the fourth time this year – in a month when unemployment rose to its highest level for 5 years. That of course means the impact of the latest rate rise has yet to have an impact. That means it is highly likely unemployment will rise higher than. 4.7%.
This week speaking after the Treasurer Jim Chalmers delivered the Bernie Fraser Oration, the former Governor of the RBA, Bernie Fraser himself, told the audience that:
“We can see all these increases in interest rates. They won’t do much to solve the inflation problem. But they are causing a lot of pain and agony for a lot of working people.”
He is absolutely spot on.
Greg Jericho is chief economist at the Australia Institute
