Australian strong job data raise rate-hike concerns

15:48, October 07, 2010      

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Australian unexpectedly strong employment figures for September put a November interest rate rise squarely back on the table, economists said on Thursday.

Total employment grew by a surprising 49,500 to 11.324 million in September, According to the Australian Bureau of Statistics.

It beat the market forecast for a pickup of 20,000 in the month.

Chief economist Stephen Roberts from Nomura Australia, the stock broker in Australia, said the strong figures raised concerns of capacity constraints and inflation and it could cause the Reserve Bank of Australia (RBA) to consider lifting interest rates in November.

"This data confirms the RBA's October decision was just a continuation of the pause, and the RBA will be back hiking in November," Roberts said.

"My suspicion is rate hikes in November or December."

The RBA unexpectedly left the cash rate on hold for the fifth straight month at 4.5 percent on Tuesday.

The RBA data showed the jobless rate was steady at 5.1 percent in September, the same level as in August.

Full-time employment rose by 55,800 to 7.984 million in September and part-time employment was down by 6,300 at 3.340 million.

The participation rate in September was 65.6 percent. It was the highest since it hit 65.6 percent in May 2009.

"The strength is phenomenal," Roberts said.

"We're going to be hearing a bit about capacity constraints ... more and more from RBA speeches over the next month as we head into the next meeting," he said.

Meanwhile, Stephen Walters, chief economist of leading financial services firm in Australia, JP Morgan, said the strong result would reinforce the case for the RBA to lift the cash rate next month.

"It's the same theme we've seen over the last 12 months really, that we keep getting these unexpectedly big job gains and the key theme is 80 to 90 percent of the jobs that we've seen created this year alone have been full-time," Walters said.

"That is fairly typical when you get a pretty strong employment performance. You typically get a lot of people coming off the sidelines looking for jobs, so that is holding up the unemployment rate," he said.

"I think we're pretty much at full employment now, so the big risk from here is that you're going to get wages growth picking up and adding to inflation pressures and that means the Reserve Bank is probably not far away from hiking again."

He predicted the central bank would raise the cash rate from 4. 5 percent to 4.75 percent in November.



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