RBA watching closely as first hard economic data released since the US/Israel war with Iran

Australia will get its first “hard piece of economic data” on Thursday providing a snapshot of how the Middle East war has impacted the economy.

On Thursday, the Australian Bureau of Statistics will make its first major announcement since the US/Israel and Iran conflict started, which drove oil prices up 60 per cent in just a month.

While the unemployment rate is tipped to slide from 4.3 to 4.2 in March, Westpac economist Ryan Wells warns the labour force figures only capture the first two weeks of the conflict.

“This will be the first official piece of hard economic data since the onset of the Middle East conflict on February 28th and as such could garner significant interest, especially in the event of a downside surprise,” he said.

But Mr Wells said “this is far too early to detect any meaningful shift in broad labour market conditions in Australia that could be tied to the Middle East conflict”.

“This is because the labour market sits further downstream from price shocks, which take time to work through household spending to margins and decisions around investment and staffing,” he said.

March’s employment figures followed a mixed result in February.

While there were strong gains in the number of roles created with 48,900 new jobs being created in February, these were almost completely driven by part-time roles.

At the same time, the number of Australians saying they wanted to work rose by 22 basis points to a participation rate of 66.9 per cent, which meant the official unemployment rate jumped from 4.1 to 4.3 per cent.

Why the Reserve Bank of Australia will be watching

The Reserve Bank closely watches the country’s unemployment rate as it has two goals of maintaining price stability and full employment.

Price stability means the central bank needs to keep inflation at between two to three per cent, although they aim for the midpoint of this band.

Full employment is having the maximum level of employment that is consistent with low and stable inflation.

There is no set goal for the RBA’s unemployment rate.

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RBA governor Michele Bullock previously told reporters post lifting the cash rate by 25 basis points to 4.10 per cent, in the current economic backdrop the risks were currently towards rising inflation over falling unemployment.

“The Board’s strategy is still to try and bring inflation back without excess employment … try to maintain as many of the gains as we can employment,” she said.

“We don’t want to see a recession or a large rise in unemployment if we can avoid it.

“That’s part of our dual mandate. So it was considered. But at the moment the risks just tip more to the inflation side given the position that the labour market is currently in.”

Mr Wells says the current inflation rate was a larger concern for the RBA as it was still at 3.7 per cent — well above the target band.

“For the RBA, though, the immediate focus is on the local inflation outlook and risks around inflation expectations,” he said.

“So, absent a significant surprise, March’s labour market data is not going to play a big role in the RBA’s next policy decision.”

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Recession warning remains

The International Monetary Fund has urged governments, including Australia, to avoid spending up big to ease cost-of-living pressures as the US/Israel war with Iran pushes the global economy to the brink of recession.

The IMF, in its latest Global Economic Outlook, warned government spending would make it harder for central banks to combat inflation.

“While such measures are popular, evidence suggests they are often both poorly designed and very costly for the public purse,” IMF chief economist Pierre-Olivier Gourinchas said.

“Avoiding fiscal stimulus is also critical when inflation is rising, so as not to complicate central banks’ task.”

The Albanese government has flagged potential cost-of-living help in its May 12 budget, as the fuel shock caused by the war pushes up prices domestically.

The IMF painted a grim economic forecast for the Australian economy, with the country being “tested’ by higher oil prices and cost of living pain.

In the latest economic outlook, released overnight, the IMF now predicts Australia’s inflation will remain above the Reserve Bank’s target range for at least another two years – rising to four per cent in 2026, before cooling to 3.2 per cent in 2027.

At the same time real gross domestic product – which is economic outlook minus inflation – is tipped to slow to just two per cent in 2026 before sliding to 1.7 per cent in 2027.

Following the release of the report, Treasurer Jim Chalmers – who is headed to Washington DC for finance minister talks at the G20 and IMF Spring meetings – said Australians were paying a hefty price for events on the other side of the world.

“The costs and consequences of the conflict in the Middle East will be felt for some time, in Australia and around the world,” Mr Chalmers said in a statement.

“We’re taking decisive action to address this global fuel challenge, by halving the fuel excise to help with the cost of living, holding petrol companies to account, working to secure more fuel and get it to where it’s needed in our economy, and engage internationally.”

He later told reporters on Wednesday the May 12 budget would be “responsible”.