Australia Watch: RBA preview: Cautious hold, keeping the door open

Research evidence excerpt

Australia Watch: RBA preview: Cautious hold, keeping the door open

…while the labour market softens…

The labour market continues to soften, with a surprise fall in employment and rise in the

unemployment rate to 4.5% in April (Exhibit 4). While some caution is warranted given

the survey period coincided with the Easter holiday (a distortion also seen in 2023 when

the May report reversed the rise) the underlying signal points to a softer outlook. The

trend measure continued to edge higher, pointing to ongoing cooling in labour market

conditions. However, other labour market indicators (such as the V/U ratio) suggest the

RBA will likely judge that conditions remain somewhat tight overall.

Exhibit 4: Employment fell -18.6k in April Exhibit 5: Margin pressures continue to weigh on small businesses

Employment growth (thousands, SA) Whether business needs assistance or support, by employment size, in

response to current fuel prices or availability

60 40

0 30

-40

-80 Financial Advisory Other No Don't know

assistance or assistance or assistance or

support support support

needed

Full-time Part-time Total 3-month ma

0–19 persons 20–199 persons 200 or more persons Source: ABS

BofA GLOBAL RESEARCH Source: ABS

BofA GLOBAL RESEARCH

…but inflation remains too high…

The April CPI confirmed fuel price spillovers are beginning to emerge, although headline

inflation was weaker than expected (see CPI review). While headline inflation surprised

to the downside, a range of core measures suggest inflationary pressure is inconsistent

with the RBA’s target. Non-tradables increased by 4.7% y/y, while tradables inflation fell

to 3.2% due to the drop in fuel prices. Cyclical inflation remains elevated, with around

85% of services and 88% of non-tradables prices rising above 2.5% y/y.