Australia's unemployment rate unexpectedly rose to 5.3% in July, prompting many industry insiders to downgrade any chance of an official interest rate rise until 2011.
Most analysts had predicted the jobless rate to stay steady at 5.1%, where it remained in both May and June.
But for the month of July, the Australian Bureau of Statistics (ABS) reported that companies across the nation added 27,700 part-time positions, and shed 4,200 full-time jobs – the first decline in almost 12 months.
Youth unemployment was hit hardest, with the total number of people aged 15-19 without a job jumping to 152,000 in July, seasonally adjusted, up from 145,000 in June. The youth unemployment rate currently sits at 18%, more than three times the general unemployment rate.
While this isn’t particularly great news for job seekers, it does paint a positive picture for mortgage holders.
Analysts and economists predict that the increasing amount of people seeking jobs will reduce pressure for higher wages, which will in turn keep inflation in check – and relieve the Reserve Bank of any reason to urgently increase interest rates.
As a result, "The cash rate will probably be left unchanged at 4.5% into 2011, because trend inflation is falling neatly back into the (Reserve Bank's) 2-3% band," says Macquarie interest rate strategist Rory Robertson.
RBC Capital Markets economist Michael Turner adds that softness in the labour market, combined with concerns over the strength of the global economy, will likely keep official rate rises on hold for several months.
"This is consistent with the RBA staying on the sidelines, which when coupled with recent global developments, increases already significant risks [that] we do not hear from the RBA again until 2011," Turner says.
There’s no guarantee that banks and lenders won’t increase interest rates
independently of the Reserve Bank, however.
Commonwealth Bank chief executive Ralph Norris has revealed that the bank's cost of funding on an average mortgage is set to rise by 40 basis points in the next year. If the CBA does decide to past this cost on to mortgage holders, repayments on an average $300,000 mortgage will increase by around $100 per week – or $1,200 per year.
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