Unemployment probably does need to climb … for now

October 2, 2026 — 5:00am

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When Reserve Bank governor Michele Bullock said last month that unemployment would “probably need to rise” to between 4.5 per cent and 5 per cent, she ruffled a few feathers, but she wasn’t wrong. With all that’s going on in the world, higher unemployment is probably a price we need to pay to stop inflation, or price growth, spiralling out of control.

That doesn’t mean the bank should get comfortable with an unemployment rate that sits above 4.5 per cent. That might, by historical standards, seem like an acceptable share of people unable to find work. But it’s not where we should aim to be.

What we need is for unemployment to sit at a level where businesses aren’t fighting tooth and nail for workers — because when they do, a battle to attract workers using higher wages can feed into higher prices as firms look to recoup their costs.

It’s a good thing to have as many people (who want work) matched up to jobs as possible because it can give them greater financial stability, a sense of purpose or belonging and fulfillment.

The problem is not that Bullock thinks unemployment should sit a bit higher. It’s that the bank seems convinced unemployment should probably stay higher than it has been for the past few years, even once many of the external shocks (such as the Middle East conflict) have passed.

Inflation jumps to four-month high a day after RBA rate rise

Right now, Bullock may seem a villain to some. She has pulled interest rates up to a 15-year-high, leaving plenty of mortgage payers gritting their teeth as more of their income disappears into interest payments. As if that wasn’t enough, Bullock says the unemployment rate, which has steadily climbed over the past........

© The Sydney Morning Herald