Surprise jobless rate fall could fuel inflation and delay rate cuts but economists bank on WA ‘sweet spot’

A gangbusters jobs report could scupper hopes of rate cut next year but experts believe the results leave WA poised to enjoy “the best of both worlds”. Defying expectations of an increase in unemployment, Australia’s jobless rate fell to 3.9 per cent in November, figures last week showed. The jobs market was even stronger in WA — which has the lowest unemployment rate of any State at 3.3 per cent. More people in work means more demand in the economy, fuelling inflation, making the Reserve Bank of Australia less likely to cut interest rates. Inflation has become a political hot potato as everyday Australians struggle with cost of living and put governments under pressure to respond. But a complicated national picture could put WA in a “sweet spot”, according to the Chamber of Commerce and Industry WA chief economist Aaron Morey. He believes a softer economy on the east coast — where 90 per cent of the population lives — could mean that when inflation does drop and interest rates are eventually cut, WA will continue to boom. “We’re in a bit of a sweet spot here in WA, where I think the slowdown will put downward pressure on inflation, and pave the path for the RBA . . . to start lowering their rates,” Mr Morey said. “That’ll really benefit WA’s economy. I think we can have the best of both worlds.” But while fewer people are in the market for jobs — fewer skilled roles are being filled. In 2022 there were more job vacancies than unemployed people for the first time on record. Mr Morey said this had come down from its peak but remained well above pre-pandemic levels. Among business owners struggling to find staff is Koba Subiaco owner Paul Truong. “It’s great to see how much people are enjoying going out and the energy in the hospitality scene is really exciting,” he said. “(But) finding staff in hospitality has always been challenging. “There are definitely some roles that are harder to fill. Competent chefs and bartenders are the toughest to find because they need specific skills and experience.” Mr Truong — who employs more than a dozen people at Koba — said a surge in demand has meant having to take on more staff as well as giving existing part time and casual workers more shifts. “Offering competitive wages definitely helps attract capable and skilled team members,” he said. Based on the ABS figures, HSBC chief economist Paul Bloxham believes the RBA will cut rates in the second quarter of next year but there is a chance of no cut at all in 2025. He said that’s because core inflation — the measure the central bank monitors which strips out volatility from the figures — will persist. “For the RBA, (the) figures are a positive in that the central bank can fairly claim that it has continued to deliver a jobs market that is close to full employment, which is one of its mandates,” he said. “At the same time, if the jobs market is no longer loosening, this should raise concerns that it could be quite hard to get core inflation to continue to fall towards its target.” Mr Morey said disposable income in WA adjusted for inflation had peaked and that our inflation was being driven by population growth, rather than any local spending spree. The economist sees “upside” in our continued population climb — which was last week again the highest of any State — but Mr Morey said these new arrivals had to be skilled in areas of need. According to the most recent CCIWA business confidence survey, businesses in the resources sector had the greatest proportion indicating they had struggled to hire a worker, with 76 per cent, while 74 per cent in manufacturing and 68 per cent in construction reported the same. WA’s population is widely believed to have recently passed three million, although official statistics, which are a lagging indicator, are yet to confirm this. Bankwest Curtin Economics Centre professor Mike Dockery said it was crucial that WA developed its infrastructure and opened up land for housing development to accommodate the influx. “The working-age population has been growing at about 50 per cent above the long-term trend and is currently growing by about 6300 people every month,” Professor Dockery said. Master Builders WA CEO Matthew Pollock said population growth was a “huge opportunity” but that WA needed to increase construction of new housing if it was to maintain its “economic advantage”. Last year, WA built about 15,000 new dwellings. Mr Pollock said this number needed to be around 24,000 but with certain trades beginning to rise in cost again, there were signs the industry was already at or near capacity. WA Treasurer Rita Saffioti said inflation had moderated significantly since late 2022, despite three years of sustained low unemployment. “That shows we can maintain a strong jobs market and get inflation back under control,” she said. “The cost of housing, particularly rental costs, has been the key driver in Perth’s CPI and in recent months we have seen the median rental price stabilise and vacancy rates returning to a more balanced level.”