Hot Air Won't Lift Rates

It didn’t take long for the bandwagon to get crowded. That’s the bandwagon calling for higher interest rates that I wrote about last Friday. Packed by now with self-promoters, the latest jobs data on face value will have them playing loudly the tune of near imminent rate rises.

For what it’s worth I think they are premature. The detail of the jobs data is just not robust enough to warrant higher rates. And even if it were, the link they claim '” from more jobs to higher wages to higher inflation '” is just too questionable for the RBA to raise rates. I just don’t think that is the song the RBA will listen to.

Instead, it would be the sounds of property prices spiralling again that would pin their ears back. Don’t get me wrong, I have been saying for more than a year now that interest rates could rise at any time if anything refuels the house price bubble. The jobs data is not the signal of that. Besides, yesterday’s jobs data was not that strong; seasonally adjusted, full-time jobs actually fell '” only part-time jobs boosted the result. Confused? Let’s look at the less volatile trend data to see what’s happening in the jobs market.

The apparent job upturn has two main influences: first, the recovery from recessionary job losses through most of Australia in the second half of last year; second, is the sure and steady job growth in Western Australia.

We could add a third influence: the Commonwealth Games, by noting the rise in Victoria. Now I know the seasonally adjusted result for the month of March, in which the Games occurred, showed a small fall in Victoria. What we should note is the jump in the trend data. That rise since December in Victoria looks odd and there may be some build-up to the Commonwealth Games in the data, which could be a third factor seemingly overstating the buoyancy of today’s Australia-wide data.

These three factors suggest the jobs rise may not be that strong after all and besides, even if it were, the risk that poses to a continuation of contained consumer prices is negligible: it’s no reason to raise interest rates. A new house price bubble would be reason to raise rates. Those calling for higher rates here have been jumping on the bandwagon of global rate rises. Today’s data will likely draw more to that view but that’s not likely to be the reason for any rate rises. Yet like a lot of rock bands, the sound they create often drowns out any discernible lyrics. Rock on.