RBA Reveals the Number of Australians Who’d Be Out of Work if It Just Focused on Lowering Inflation

Why It Matters

The analysis highlights the trade‑off between inflation control and labour market stability, informing policymakers and investors about the economic cost of tighter monetary policy in Australia.

Key Takeaways

• RBA avoided rates above 5.5% to protect jobs.
• Higher rates would have added ~200k unemployed Australians.
• Mortgage payments would rise ~$500/month on $600k loan.
• Inflation could have dropped to 2.5% faster with higher rates.
• Unemployment would climb to ~5.3% by late 2025.

Pulse Analysis

Australia’s central bank faces a classic dilemma: curb price growth without derailing the labour market. Sarah Hunter’s recent speech revealed that a steeper interest‑rate trajectory—peaking at 5.5%—would have accelerated disinflation, potentially pulling headline inflation down to 2.5% last year. However, the same path would have lifted mortgage costs dramatically, adding roughly $500 to monthly payments on a median $600,000 loan, and pushed unemployment toward 5.3% by 2025, an increase of about 190,000 jobs lost. This internal modelling underscores why the RBA opted for a more measured approach, keeping the cash rate at 4.35% at its 2023 peak and maintaining unemployment near 4.1%.

The broader implications extend beyond households. Higher financing costs would have constrained housing construction, dampened investor activity in the property market, and slowed wage growth, potentially feeding back into slower consumer spending. While other major central banks—Canada, the United States, New Zealand, and the United Kingdom—pushed rates above 5%, the RBA’s restraint reflects a dual‑mandate focus on employment stability. Analysts now watch for signals that inflation expectations remain anchored, a prerequisite for any future tightening without reigniting job losses.

Looking ahead, market participants expect the RBA to nudge rates to around 4.1% before the May budget, balancing inflation pressures from global oil price volatility and geopolitical risks, such as the conflict in Iran. Should external shocks intensify, the central bank may pause further hikes, prioritising economic certainty over aggressive price targeting. The disclosed trade‑off offers investors a clearer view of the cost of policy choices, reinforcing the importance of monitoring both monetary stance and labour market data in Australia’s post‑pandemic recovery.