Bullock weighs in before rates day

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Carrington Clarke (0:38)

It was the last opportunity for the Reserve Bank boss to get her message out to the public at large ahead of next week's crucial rate decision. And the message that people almost unanimously seemed to hear was the fight against inflation ain't over yet. And it may take a further lift in unemployment to get us there. So is a rate hike all but certain? And is Donald Trump about to cut the world off from American diesel? Welcome to ABC Business Daily.

I'm Carrington Clarke.

Millie Muroi (1:07)

And I'm Millie Muroi, economics writer for The Sydney Morning Herald.

Carrington Clarke (1:10)

Millie, thank you so much for taking some time out of your day to come over and be with us here in Altimo. We had a big speech, fireside chat, as I like to call it, with the Reserve Bank governor yesterday. The Reserve Bank officials have been pretty active in the last few weeks. There's been a lot of both media appearances but also talking to professionals. I think it's fair to say that there's been a consistent message now coming from both the Reserve Bank governor and the deputy as well as the assistant governor who works as the chief economist as well, which is inflation ain't finished with yet and we stand ready to hike interest rates if needed.

Are we almost certain now to see a hike next week and how crucial do you think tomorrow's unemployment number will be?

Millie Muroi (1:56)

I think tomorrow's number will be pretty crucial for the Reserve Bank.

Unemployment obviously is something that they've been keeping an eye on. They have been quite hard or they have come out quite hard recently, especially saying that essentially unemployment does need to rise a little bit more for inflation to come down. They've had this message for a while now. They eased off a little bit earlier in the year, I think, but they have been coming back onto this message. Basically, the reason for that is that when the unemployment rate is low as it has been compared to historically, that means that there's pressure on wages or theoretically, there is a lot more pressure on wages. That means that costs go up for businesses and then that gets passed on to prices for consumers as well. So the Reserve Bank has been saying, Michelle Bullock yesterday had told us we need to see unemployment or the unemployment rate hit probably 4.5% to 5% in order for us to see that drop in prices. So it does seem like at the moment, most economists are expecting a rate hike next week, but we never know with these things. Sometimes we all expect the hikes to happen and then they don't. I do think that tomorrow, if the unemployment rate hasn't ticked up or remains fairly low, the chances are that they will probably raise rates.

Carrington Clarke (3:20)

Yeah. It was hard to get a full read on what Michelle Bullock was saying. I'm going to use the exact quote because I think people can pass this sentence in however they like. So she said between 4.5 and 5, talking about the percentage unemployment rate, will probably take enough heat out of the labor market that eases pressure on inflation. So it's currently sitting at 4.5 percent. We wait to see what the number is tomorrow. People read that as saying at the moment, it's barely touching the bottom of what it needs to be in order to bring down those inflationary pressures, but it is touching it. So there is also some wriggle room there to suggest that perhaps, let's say it falls slightly, then is it out of that band? If it bumps up a lot, does it mean that that takes the pressure off them to hike rates again further? There is this almost inside the economics profession discussion about what is the so-called NIRU, which is the non-accelerating inflation rate of unemployment. Earlier in the year, Michelle Bullock suggested that maybe it's about 4.6. At the moment, they don't know exactly. They have to work it out by looking at the models.