Reserve Bank interest rates: Michele Bullock declares jobs market still too hot to crush inflation

Reserve Bank boss Michele Bullock has warned Australia’s booming jobs market still has too much steam to give borrowers relief, casting more doubt on the chances of a pre-election rate cut.

A flurry of Federal Government power rebates and easing fuel prices have also failed to lure the RBA — with Governor Bullock declaring a rate reduction won’t be considered in the near term.

Experts are already divided as to whether Treasurer Jim Chalmers will be able to claim a win on rates before the Federal Election due by May.

Demand for workers has been going gangbusters despite a slow economy and higher interest rates, delivering new jobs for almost 400,000 Aussies in the year to October.

“We judge that conditions in the labour market remain tighter than what would be consistent with low and stable inflation,” Ms Bullock told a Committee for Economic Development of Australia event on Thursday night.

The country’s jobless rate is just 4.1 per cent, which Ms Bullock said was good by historical standards and compared to overseas.

The central bank reckons that needs to rise to about 4.5 per cent to rein in demand and crush inflation. It believes the goal will be achieved through slower employment growth, rather than major job losses.

“The increase in the unemployment rate over the last two years has been significantly smaller than some other countries,” Ms Bullock said.

“While some labour market indicators have shown signs of easing, the demand for workers remains robust, particularly in sectors like health care and education.”

Both sectors have been heavily influenced by rocketing Federal and State government spending.

The Governor’s speech came just one day after fresh data showed inflation was 2.1 per cent through the year to October.

Mr Chalmers said that was down two thirds on the level he had inherited from the Morrison Government, and labelled the numbers “substantial progress”.

“The direction of travel is clear,” he said.

Ms Bullock disregarded that figure — artificially lowered through power rebates — and said the underlying level of inflation “was still too high at 3.5 per cent in the year to the September quarter”. Her bank believes price rises won’t be under control until 2026.

“As it currently stands, underlying inflation is still too high to be considering lowering the cash rate target in the near term,” she said.

Household costs like rent and education are running hotter than the RBA wants, and have been stubborn about slowing.

But while the news would not shift the dial on interest rates, Ms Bullock acknowledged “falling inflation would be welcome relief for people feeling the pinch as cost of living pressure rose”.

A recent poll of economists showed a majority still tipped rate relief in February. Financial markets judge a cut by May more likely than not.

Nonetheless, a herd of experts have punted their forecasts back in recent weeks. The group included financial houses Citi, NAB and RBC Capital, with warnings a big spending Federal election risked further delays.

Across the Tasman, the Reserve Bank of New Zealand slashed rates by 50 basis points to 4.25 per cent on Wednesday.

Ms Bullock said central banks were easing pressure when they were confident inflation was back at target and focusing on downside risks.

“Given the tightness in Australia’s labour market, along with our assessment that the level of demand still exceeds supply in the broader economy, we expect it will take a little longer for inflation to settle at target in Australia,” she said.