Australian labour market – sharp deterioration in April (RBA will be happy!)

The Australian Bureau of Statistics (ABS) released the latest labour force data today (May 21, 2026) – Labour Force, Australia – for April 2026 – which showed that the labour market deteriorated significantly in April. All the main indicators were moving in negative directions – employment growth fell, participation fell, unemployment increased, the employment-population ratio fell. There are now 10.2 per cent of available labour not being used (either unemployed or underemployment), which makes a farce of the RBA’s claims that the labour market is tight. There is substantial scope for more job creation given the slack that is present. However, if the global situation doesn’t improve quickly then that slack will increase sharply.

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Australian government being bullied by the RBA to move towards irresponsible austerity

Last Tuesday (May 12, 2026), the Australian Treasurer introduced the 2026-27 Fiscal Statement (aka Federal ‘Budget’). I have been reluctant to comment on the ‘Statement’ given the constant repetition by the Treasurer about a ‘trillion dollars of debt’ and all the rest of the flawed conceptual development and nomenclature that has surrounded its release and subsequent public commentary. But I do want to make a few comments on some of the detail and subsequent commentary. The Government is running scared at the moment as the extreme Right-wing political party, One Nation threatens to take a swathe of seats at the next election (similar to what Reform UK is doing). It is also being bullied by the RBA Governor who is threatening more destructive rate hikes if the government doesn’t cut its fiscal deficit. Such a policy stance will see unemployment rise further (and in my estimation, much higher than the Government forecasts). And if there is any growth associated with the fiscal stance it will come from increasing household debt which is unsustainable given the record levels of indebtedness currently endured by the household sector. Overall, this is not an impressive fiscal statement.

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Latest wages data makes a mockery of the RBA claims that the economy is overheating

Last week, the RBA hiked interest rates again and tried to claim the economy was overheating. One way that we assess that claim is via the wages pressure in the labour market. An economy that is running out of productive resources, typically sees firms competing for scarce workers and bidding up wages to attract them. Yesterday (May 14, 2026), the Australian Bureau of Statistics released the latest – Wage Price Index, Australia – for the March-quarter 2026, which shows that the aggregate wage index rose by 3.3 per cent over the 12 months and is steady. Meanwhile, the annual inflation rate for the March-quarter came in at 4.1 per cent, while the monthly CPI inflation rate for March was 4.6 per cent. That means real wages are falling quite sharply, which is not consistent with an economy that is overheating and running short of resources. The RBA are grossly misrepresenting the current situation because they need cover to pursue their ideological crusade and assert their prominence in the policy making arena. The costs are borne by the workers who cannot get decent wage rises and the low-income mortgage holders that are transferring income (via the rate hikes) to the financial asset holders and bank shareholders (the ‘top-end-of-town’). It is extraordinary that the working class is so compliant in the face of this arrant power abuse by the elites.

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Article 4 of the Bank of Japan Act 1997 ensures fiscal and monetary policy must work together

Last week, the RBA increased interested rates claiming there was a growing capacity constraint (even though there is 10.2 per cent labour underutilisation) and inflationary expectations were increasing and in danger of propelling inflation even further. The RBA governor once again threatened the Treasurer along the lines of ‘unless you cut net spending we will continue to hike rates’ – which not only demonstrates that the central bank is not politically independent but also reveals how poor monetary policy then compromises fiscal policy. The double jeopardy of New Keynesian macroeconomics – pretend monetary policy is effective and then cripple fiscal policy (which is effective) by subjugating it to the central bank whims. If we look at what is going on in Japan at present, we get a different angle to this. The Bank of Japan is certainly worried about inflation but it is being tethered to some extent by the Prime Minister who is placing a specific emphasis on Article 4 of the Bank of Japan Act. The resulting policy dynamics stand in sharp contrast to the way the RBA acts and thinks it is appropriate to bully the government into pursuing austerity when there is massive wastage of available labour resources.

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RBA rate hikes – ideology triumphing over evidence and reason

In some respects, we are back to where we were in 2021 when the supply constraints that arose from the COVID lockdowns and widespread illnesses started to reveal themselves in escalating prices around the world. This time it is the US-Israel folly in the Middle East that is the culprit and the supply constraints are largely confined to energy, specifically oil (and its derivative products). And like the COVID inflation, the current inflationary pressures will prove to be transitory and will dissipate as soon as Trump gets bored and decrees his folly is over. It is irresponsible to adjust monetary policy, which will have long-term consequences, to deal with a short-term blip, especially when the causes of that blip are not sensitive to interest rate changes. When the RBA hiked interest rates again they knew they could not justify it based on the energy cost rises. Everyone knows these cost rises are temporary. So the RBA resorted to “capacity constraints” and ‘rising expectations’ to justify their action yet provided no robust evidence to support these assertions. It was ideology triumphing over reason. Just what we have come to expect from our central bank.

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US economy on an unstable knife edge at present

The income and wealth inequality that continues to grow in most advanced nations has led to some new terminology being introduced into the lexicon of economic terms, the – K-shaped economy: When growth moves in two different directions. When this pattern of growth is identified you know how far out of kilter the world has become. Essentially, for most people, times are so tough that even essential goods and services become so expensive that even non-discretionary spending starts to take a hit. Yet, for the top-end-of-town, with the high wealth and high incomes, who are boosted by rising central bank interest rates and rising asset prices (financial and real estate etc), their spending goes crazy as the Porsches roll out the showroom door at an increasing rate. The K-pattern relates to the less well-off heading south and the rich and high income cohorts heading north in terms of prosperity and capacity to consume. The latest data from the US, which exemplifies this trend more than most countries, given its massive inequality, clearly demonstrates this phenomenon.

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Has the UAE seen the writing on the wall (peak oil that is)?

A lot of the post WW2 institutional structure is being challenged at present and/or vanishing altogether. Some of the changing environment will prove to be disastrous for the world, while some of the changes are likely to be beneficial. There will also be pro and con of many of the disruptions. Tomorrow (May 1, 2026), the United Arab Emirates (UEA) will formally leave the Organization of the Petroleum Exporting Countries (OPEC), which many consider will mark the beginning of the end for the cartel that has shown at various times since it was established in 1960, that it can manipulate world oil prices to the advantage of cartel members. But OPEC has been in decline for many years and member states have been doing informally, what the UAE plans to do formally as a Non-OPEC, non-DoC member. The departure will have some negative impact on oil prices once the Iran mess ends. But the most significant aspect I think is that it marks the recognition by one of the largest oil producers that peak oil is past and they need to cash out their remaining reserves and invest in renewables before it is too late. If that is correct, and that sentiment catches on then positives might come from the decision in the medium-term.

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My blog is on holiday today

Today is a public holiday (ANZAC Day) where we remember the efforts of our past generations who fought in wars. This used to be a rather sombre day when some reflections were in order about the men and women who died ‘defending’ our nation. However, it is now a full-on, merch-driven, commercialised glorification of war that has become repugnant to say the least. All of the WW1 veterans are now dead and the WW2 returnees are going the same way. In this modern era, we are confronted with the black/white narrative (we were good they were evil), which obscures the reality of war and the political machinations that typically accompany it. In our national War Memorial in Canberra, we are still displaying the deeds of Australia’s ‘most decorated’ soldier, who happens to be currently charged with several war crime murders in Afghanistan, such is the hold that the war-glorification lobby has with policy makers. In Australia’s case our involvement in several wars has been the product of unnecessary colonial master-servant type arrangements (us being the servant) and/or ridiculous alliances with the war mongering US. At least we are not participating in the slaughter by the IDF in Gaza, Lebanon and the US-IDF in Iran. But it is also clear, that the Australian soldiers certainly did it tough and I have sympathy with that – and personal associations with my grandparents and parents. But, on a pragmatic basis, my blog is taking the day off so I can use the time to finish some work that has impending deadlines.

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Robert Skidelsky death – some recollections

The biographer of Keynes in three volumes – Robert Skidelsky – died on April 15, 2026 at the age of 84. As I explain below, Skidelsky was what we consider to be a mainstream ‘deficit dove’, who are Keynesian and Post Keynesian economists that are comfortable with using fiscal deficits to increase economic activity when there is mass unemployment, but then consider the government must then pursue surpluses on the other side of the cycle to balance out the fiscal position over the full cycle. They couch their recommendations in conservative logic bounded by appropriate movements in the debt to GDP ratio. They are ‘mainstream lite’ and typically oppose Modern Monetary Theory (MMT). As I explain, I met Skildesky in London a few times when MMT was becoming very popular (early in GFC) and we had fundamental disagreements even though he was attracted to certain element of MMT including the Job Guarantee. Here are some recollections.

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A classic case of the Australian government denying that it is the Australian government

Most of the examples of fiscal austerity leave one puzzled as a result of the sheer myopia that is usually present – the ‘save a penny today to spend a dollar tomorrow’ sort of nonsense that history tells us repeats when governments try to reduce spending in areas that it should not. But sometimes one encounters examples of the government pretending not to be the government and making decisions that are just absurd on any basis. Here is one example that is current in the Australian context but which carries general principles that apply everywhere. I am currently doing some work on the proposal of Airservices Australia (ASA) to outsource the provision of its infrastructure to a private partner in the financial sector under what it calls a ‘Value-for-Money’ partnership. The details of this proposal, inasmuch as there is public information released makes you wonder how far the neoliberal lunacy has gone. It is a case of a government deliberately constraining itself in its responsibilities to provide an essential service – essentially denying its unique capacities – then proposing that it can ‘save taxpayers money’ by delivering profits to a private speculator (in essence) and get a better deal. But the arithmetic that delivers this ‘better deal’ is only possible if the government denies that it is the government and tilts the playing field so far that a terrible deal becomes the preferred one. Lunacy exemplified. And all the parties to this deal produce glossy PowerPoint slide shows, and have meetings and all the rest of the ‘private consultancy capture of government’ hoopla that is played out on a daily basis in these days, pretending that it is just normal business. Yet, anyone who actually understood what was going on would realise that this is a scam of all proportions.

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