Rising unemployment shows why interest rate hikes should be paused, says ACOSS

The rise in unemployment reported today shows the RBA’s rapid and drastic interest rate rises are having an adverse impact on employment and should be paused.

The RBA already estimates unemployment will rise to 4.5% by mid-2024 – that’s 150,000 more people out of paid work.

ACOSS is concerned hundreds of thousands more people will be put out of work if the RBA keeps raising interest rates.

CEO Cassandra Goldie said the government can combat inflation by tackling price rises at their source rather than relying on the blunt tool of interest rate rises.

“Today we are seeing the real and harsh effects of rapidly rising interest rates, with 21,900 people losing their jobs.

“High inflation is a serious challenge and should be addressed, but we need a more nuanced approach that avoids pushing more people onto woefully inadequate income support.

“Now is the time for the RBA to pause on interest rate rises and take stock while the government should curb inflation directly with better regulation of exorbitant rent and energy prices, and by strengthening the ACCC so that businesses can’t take advantage of price rises to lift their profit margins.”

ACOSS is also calling on the government to reach agreement with the RBA on a formal full employment target (low unemployment and under-employment) and give it equal priority to the Bank’s inflation target.

In the ACOSS submission to the RBA Review. ACOSS also calls for greater diversity in the composition of the RBA Board include representation of people on the lowest incomes and those excluded from the labour market.

Key facts 

In January 2023, employment fell for the second month running and unemployment rose:

  • Unemployment rose by 21,900 people, from 3.5% to 3.7% (seasonally adjusted)

This follows a reduction in employment and increase in underemployment in December:

  • Employment fell by 15,000 workers (seasonally adjusted)
  • The employment to population ratio decreased to 64.3%
  • Underemployment (insufficient paid working hours) rose from 5.8% to 6.1%
  • Monthly hours worked decreased by 9 million to 1,888 million.

Interest rate rises impact on the economy 12-18 months after they are announced. After the sharpest interest rate hikes in decades this year, there are signs that inflation is stabilising or declining.

  • In the December quarter the CPI rose by 1.8%. ‘Core’ inflation or ‘trimmed mean’ CPI rose by 1.6%, compared with 1.8% for both measures in Sept 2022.
  • In that quarter, the CPI was propped up largely by spending on holidays and travel, reflecting pent up demand from the pandemic. That is likely to subside.
  • Retail sales slumped by 3.9% in December.