Economists ponder earlier cash rate rise

Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)

 

A speech by one of the Reserve Bank of Australia’s top officials will provide an opportunity to respond to last week’s extraordinarily strong labour force figures and signal whether it changes the timing of a future interest rate rise.

Economists certainly believe it does.

RBA assistant governor for economics Luci Ellis will address an Ai Group business lunch in Adelaide on Wednesday.

The latest jobs figures for May showed the unemployment rate tumbling to 5.1 per cent from 5.5 per cent in April and back to its pre-pandemic level, as a massive 115,200 people joined the workforce.

The RBA has repeatedly said a rise in the cash rate from 0.1 per cent will not happen until the inflation rate is within the two to three per cent target, which will need wages to be growing at three per cent and a jobless rate closer to four per cent.

It had not expected to see these events until 2024 at the earliest.

However, the recovery in employment has been much stronger than either the RBA or Treasury had been anticipating.

AMP Capital chief economist Shane Oliver, and other economists, have been anticipating the first cash rate rise being in 2023.

“After the strong jobs numbers there is a risk it may come in late 2022,” Dr Oliver said.

In the run-up to Dr Ellis’ speech, key figures for retail spending, job vacancies and international trade will be released.

The Australian Bureau of Statistics will release preliminary retail trade numbers for May on Monday, which economists expect will see a further 0.5 per cent increase, building the 1.1 per cent rise in the previous month.

Tuesday will see the weekly ANZ-Roy Morgan consumer sentiment index – a pointer to future household spending.

Confidence has been shaky as of late due to the recent 14-day Melbourne COVID-19 lockdown, and won’t be helped by a growing virus outbreak in Sydney’s eastern suburbs.

However, the falling unemployment rate should provide some support.

The ABS will also release its latest job payrolls report to provide a guide to the health of the labour market in the early stages of June.

It will also issue preliminary figures for international trade for May on Wednesday.

On the same day, the National Skills Commission will release its final skilled vacancy report for May. Its preliminary data showed a 1.9 per cent increase for job advertisements posted on the internet.

Meanwhile, Australian shares look set for a weak start to the week, pulling back from their record breaking run after Wall Street took a tumble on Friday.

US stocks ended sharply lower after Federal Reserve official James Bullard said the US central bank might raise interest rates sooner than previously expected.

The Dow Jones Industrial Average fell 533.37 points, or 1.58 per cent to 33,290.08, the S&P 500 lost 55.41 points, or 1.31 per cent, to 4,166.45 and the Nasdaq Composite dropped 130.97 points, or 0.92 per cent, to 14,030.38.

In response, Australian share futures sank 111 points, or 1.5 per cent, to 7168.

On Friday, the Australian benchmark S&P/ASX200 index closed at a record high, rising 9.9 points higher, or 0.13 per cent, to 7368.9.

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