CANBERRA, AAP – Reserve Bank deputy governor Guy Debelle says the drop in the unemployment rate to 5.8 per cent was faster than the central bank had been anticipating and hopes the trend continues.
The decline from 6.3 per cent in February labour force data released last week generally took market economists by surprise as well.
“The unemployment rate has come down faster than we would have thought by this time than we did six months, nine months ago and we are hoping that trend continues,” Dr Debelle told senators in Canberra.
However, he still thinks the economic recovery is going to be “bumpy and uneven”.
In the near term, like Treasury, he expects the decline in the jobless rate may pause when the JobKeeper wage subsidy ends in a few days time.
Also, wage growth has remained subdued, despite the rapid decline in the unemployment from its 22-year high of 7.5 per cent during the depths of last year’s recession.
Dr Debelle said it is unclear what level of unemployment is needed to lift wage growth to a level that would return inflation to the central bank’s target of two to three per cent.
“Our view is still very much wage pressures are likely to be subdued for quite sometime yet,” Dr Debelle told a Senate estimates hearing during Wednesday’s evening session.
“What we do know is before the pandemic arrived, we had an unemployment rate of around about five per cent and we weren’t seeing much pressure on wages.”
Commenting on the experiences of other countries prior to the pandemic, he said they got to historically low rates of unemployment before they saw upward pressure on wages.
“That may be the same sort of dynamic in Australia,” he said.
RBA governor Philip Lowe said recently that full employment could be sustainable with the jobless rate in the low fours or even the high threes.
“With any luck, we start seeing upward pressure (on wages) before we get there,” Dr Debelle said.
“We need wages a fair bit higher than where there are now before we get inflation up to a reasonable number which is consistent with our objective.”
The central bank expects to keep the cash rate at a record low 0.1 per cent until inflation is sustainably within its target band, which it does not expect to occur until 2024.
The Australian Prudential Regulation Authority and the Australian Securities & Investment Commission will come under the spotlight of the Senate economics committee on Thursday.