The Reserve Bank of Australia (RBA) will look at the latest unemployment figures – 4.3%, roughly 650,000 people out of work – and see a labour market that is still “too tight”.

In other words, not enough people are unemployed for inflation to come down. Although that figure reflects almost none of the economic fallout from the war in the Middle East, it will strengthen the case for further interest rate hikes.

The logic of these expected rate hikes is to slow spending by pushing up mortgage repayments and, ultimately, pushing more people out of work. Those people will land in an employment services system that, as a 2023 parliamentary inquiry found, treats them more like fraudsters than citizens who need help.

The fact the RBA is intentionally lifting the unemployment rate is rarely said out loud. However, Governor Michele Bullock came close in a speech in 2023:

If unemployment remains too low for too long, inflation expectations will rise, which will make it that much harder for the monetary authorities to bring inflation back down.

If unemployment remains too low for too long, inflation expectations will rise, which will make it that much harder for the monetary authorities to bring inflation back down.

Our current inflation management framework is problematic in theory, in practice and in impact.

The theory on unemployment

At the heart of the RBA’s framework is a concept only an economist could come up with: the Non-Accelerating Inflation Rate of Unemployment, or NAIRU. This is the theoretical lowest unemployment rate the economy can sustain before wages push up inflation.

The RBA........

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