Australia’s unemployment rate is well above any reasonable full employment level
Central banks around the world tightened interest rates starting late 2021 in some places and there was a systematic period of hikes over the next year or more despite the inflationary pressures mostly showing signs of abatement as a result of factors that were not sensitive to the rising interest rates. In Australia, the RBA started hiking in May 2022 and continued through to November 2022, despite the inflation rate peaking in December 2022. The RBA consistently claimed the labour market was too tight and that the unemployment rate was below the unobservable Non-Accelerating-Rate-of-Unemployment (the so-called NAIRU), which meant to stabilise inflation in their eyes, they had to force unemployment higher. Their logic was not consistent with reality and tens of thousands of workers have lost their jobs over the last few years as a result of deliberate policy choices all for nothing. The inflation outbreak was not the result of excess spending and came down on its own accord as the COVID constraints abated and supply chains worked around Putin and all that. In this blog post I produce some research that further cements that conclusion. There are some technical details but essentially the narrative should be easy to follow.