A Reserve Bank assistant governor has suggested unemployment could rise at a faster pace than anticipated as a result of this year’s four interest rate rises, while a major bank has warned the ban on surcharge fees could see business put up their prices.
Christopher Kent, who is in charge of financial markets at the RBA, said the five-year high jobless rate of 4.7 per cent had surprised the central bank which in August released updated forecasts of unemployment not reaching that level until December 2027.
“There are indicators where the labour market has become less tight a bit faster than we might have forecast,” he told the Commonwealth Bank Global Markets Conference in Sydney on Monday.
“And I think a really important question here, is that because demand is weakening maybe a bit more than you might have thought for labour? Or is it because are there still these pressures in terms of costs of labour still rising too greatly?”
The Reserve Bank has previously calculated full employment as being at 4.5 per cent, where wage pressures are not yet feeding inflation and the labour market is in balance.
Some economists think this reading, also known as the non-accelerating inflation rate of unemployment, could be closer to 5 per cent.
Dr Kent said inflation data for September, due out on October 28, could provide a better indicator of full employment, with economists universally expecting the consumer price index to be above the RBA’s 2-3 per cent target for the 14th straight month.
“We’ll get a partial reading on that and an ability to update some of the estimates of things like the NAIRU when we get the inflation data for the important stuff next week,” he said.
Westpac economists Justin Smirk and Neha Sharma are forecasting an annual headline inflation rate of 4.1 per cent, up from August’s 4 per cent level, as the trimmed mean measure of underlying inflation held steady at 3.6 per cent.
Both measures of inflation have been consistently above the Reserve Bank target band since August 2025, with renewed tensions in the Middle East expected to see headline inflation worsen, with this measure covering volatile price items.
“Global shipping costs have also surged recently amid renewed Middle East tensions,” the Westpac economists said.
Higher interest rates may only delay businesses passing on higher wholesale costs, arising from the Reserve Bank’s October ban on charging customers surcharge fees unrelated to the cost of processing a transaction.
“Waning spending momentum outside of fuel may make it difficult for businesses to pass through higher costs in the near term,” the economists said.
“However, some of these pricing pressures may be deferred rather than forgone.
“The October ban on card surcharging may prompt a greater-than-usual degree of price resetting, allowing businesses to recover some of the margin pressures that have built up in recent months.”
The Reserve Bank is releasing updated forecasts on inflation and unemployment on November 3, coinciding with its next meeting on Melbourne Cup day.
The futures market is regarding an increase in a fortnight as an 18 per cent chance, following the unexpected rise in unemployment.
At its last meeting in September, the RBA voted unanimously to raise the cash rate to a 15-year high of 4.6 per cent, on top of the February, March and May increases.
The RBA has a dual mandate of keeping inflation without target and maintaining full employment but a further increase in the jobless rate without a moderation in price pressure could see the central bank simultaneously failing at both tasks.