By James Glynn
SYDNEY--Australia's unemployment continued to fall in July, supporting expectations that the Reserve Bank of Australia will raise its official interest rates by a further 50 basis points in September.
The jobless rate fell to 3.4% in the month from 3.5% in June, plumbing its lowest level in half a century, the Australian Bureau of Statistics said Thursday.
The drop in unemployment came even as the economy shed 40,900 jobs over the month. The apparent conflict in the data is explained by a big fall in job-market participation.
The participation rate fell 0.3 percentage point in July from a record of 66.8% in June. Still, it remained 0.5 percentage point higher than before the pandemic.
July included winter school holidays, elevated worker absences associated with Covid-19 and other illnesses and flooding events in New South Wales, the ABS said.
Overall, the job market remains extremely tight, adding to expectations that wage growth will rise strongly in the second half of this year, driving inflation upward while ensuring the RBA continues to push interest rates higher.
The RBA has raised the cash rate by 175 basis points since May, taking it to 1.85%, a level still well short of neutral, which the RBA has said might be closer to 2.5%.
The jump in interest rates is the fastest since the early 1990s, reflecting inflation that is expected to run at close to 8.0% this year, the fastest rate of change in consumer prices in a generation.
Data on Wednesday showed wage growth is edging higher, but the pace of increase is still subdued overall.
That is expected to change over the next six months, as the impact of a big rise in the country's minimum wage in July feeds through more broadly to pay packets, while firms are being forced to offer higher rates of pay to retain workers.
The ABS estimates that there is about one job opening for every unemployed person in the economy, creating unprecedented demand for skilled workers. One reason for the tight job market is the slow return of foreign workers after borders were shut during the worst of the Covid-19 pandemic, but solid growth in the economy is also a factor.
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