Australia’s seasonally adjusted unemployment rate fell to 3.6% in May from 3.7% in Apr. Seasonally adjusted employment increased by 75,900 people, from a revised fall of 4,000 people (4,300 fall previously). The increase in employment in May also saw the number of employed people in Australia reach 14mn for the first time.  

We had previously held the view of the RBA pausing and maintaining its cash rate target at 4.10%. Given the latest jobs numbers, however, the extended period of inflation above target amidst a tight labour market poses the risk of stronger wage and price expectations becoming embedded. As such, there are risks that inflation may remain higher for longer. 

We are now penciling in a 25bps hike at the next monetary policy meeting on 4 Jul. We are nonetheless, aware that the key risk to our cash rate target call is the reaction function of the RBA to inflation data. It may prefer to have the benefit of the full 2Q22 CPI data release on 26 Jul before moving the cash rate target again