While Australian economic policy makers are forecasting a growing economy with moderate inflation, policy makers elsewhere are concerned about accelerating inflation. In the federal budget update released yesterday, the Treasury has forecast a growing economy with inflation within the RBA’s 2-3% target band over the next three years. The RBA is signalling it won’t increase the cash rate next year (Reserve Bank of Australia insists economic conditions ‘still a fair way’ from an official interest rate hike), but there’s always the possibility it could be forced to, if inflation accelerates further than policy makers are expecting.

Elsewhere, the Bank of England has finally increased Bank Rate from 0.1% to 0.25%, after inflation increased to a ten-year high of 5.1% (see Interest rates rise for first time in three years). And the US Federal Reserve has had what the Financial Times has described as a “hawkish pivot on inflation”, and it has signalled three interest rate increases next year. Also, somewhat bizarrely, Turkey is increasing its minimum wage 50% in response to an inflation rate of over 20%, a move which many economists have criticised as potentially contributing to an inflationary spiral. I’ll cover all these developments in my livestream later today (link below).

In Australia, the budget updates from the federal and state government yesterday reflected the general optimism about the domestic economy as we approach 2022. The November labour force numbers published yesterday by the ABS were extraordinary, with unemployment below 5% in all the states except Tasmania (where it was just over 5%) and below 4% in WA (see chart below). This is probably related to immigration not adding to labour supply during the pandemic. Once immigration resumes to near previous levels we may no longer be seeing unemployment rates with a 4 in front of them.

Yesterday, the ABS also published updated interstate migration data, confirming just how many people have relocated to Queensland during the pandemic, nearly 31,000 in the 2020-21 financial year. With interstate borders reopen, I suspect we’ll see strong interstate migration next year as more people flee from Sydney and Melbourne. Of course, COVID is coming to Queensland, so maybe we won’t look so good in a few months time. As always, the future is highly uncertain.

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