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Australia’s Population Growth to Cool Inflation, St. George Says
(Bloomberg) -- A surge in overseas arrivals to Australia is acting as a “pressure relief valve” for the tight jobs market, with an expected jump in labor supply expected to cool inflation this year, St. George Bank said.
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The supply of workers will likely increase by 270,000 in the year-ending June, 100,000 more than the previous peak seen in 2008-09, Pat Bustamante, senior economist at St George, said in a research note Friday.
Bustamante expects unemployment to rise by up to a half-percentage point and services inflation to drop by as much as 0.2 point by June.
“More importantly, it will reduce the risk of unsustainable wages growth and the possibility of an economic hard landing,” he said. “Where there’s enough supply to meet demand, there is less need for employers to offer unsustainably high wages.”
Australia’s labor market is one of the bright spots of the economy with unemployment hovering around a 50-year low of 3.5% and job vacancies still elevated. There are, however, fears of a slowdown as the country’s central bank raises interest rates sharply to fight inflation.
The most-recent data showed domestic price pressures remained strong in the final three months of 2022, driven by services inflation that tends to be sticky. Boosting the labor supply will help keep wages growth in check “without having to engineer a hard landing,” Bustamante added.
The Reserve Bank will likely raise rates by 25 basis points at its first meeting of the year on Tuesday to take the cash rate to a 10-year high of 3.35%.
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