Employment and inflation rising: What’s the link?

New data has revealed that Australia’s employment rate continues at record highs, with inflation also creeping higher. Could the two be linked?

According to the Australian Bureau of Statistics (ABS), the unemployment rate remained at 3.5 per cent in June, the same as the month before. Meanwhile, employment saw a rise of 0.3 per cent.

Bjorn Jarvis, ABS head of labour statistics, commented on the findings: “With employment increasing by around 33,000 people and the number of unemployed decreasing by 11,000 people, the unemployment rate remained at 3.5 per cent.

“The rise in employment in June saw the employment-to-population ratio remain at a record high 64.5 per cent, reflecting a tight labour market in which employment has recently increased in line with population growth.

“In addition to there being over a million more employed people than before the pandemic, a much higher share of the population is employed. In June 2023, 64.5 per cent of people 15 years or older were employed, an increase of 2.1 percentage points since March 2020.”

Women led the charge, said Mr Jarvis: “The rapid rise in full-time employment has been particularly pronounced for women, rising from 54.2 per cent of employed women just before the pandemic to 57.9 per cent in June 2023 – the highest it has been since 1994.

“This compares to a more modest increase in the share of employed men working full-time, which increased from 80.9 per cent before the pandemic to around 81.5 per cent in June, around where it was in 2018.”

Hours worked also saw an increase of 0.3 per cent in June, faster than the growth in employment.

“Over the past 12 months, hours worked increased 4.7 per cent, outpacing the 3.0 per cent increase in employment,” Mr Jarvis commented.

“The strength in hours worked since late 2022, relative to employment growth, shows the demand for labour is continuing to be met, to some extent, by people working more hours. Consistent with the stronger growth in hours worked, full-time employment has increased by 380,000 people over the past year, while part-time employment increased by 30,000.”

So, what’s causing this keenness to work? The rising inflation rate may have something to do with it.

According to the ABS, the consumer price index (CPI) rose by 0.8 per cent in the June quarter. Rents are leading the charge in price increases, said ABS head of prices statistics Michelle Marquardt.

“Rents recorded the strongest quarterly rise since 1988, reflecting low vacancy rates amid a tight rental market. Rental price growth for flats continued to outpace the growth for houses,” said Ms Marquardt.

“Higher demand for international travel, particularly to Europe with the start of the European summer peak season, led to price increases. These were partially offset by price falls for travel to south-east Asia and New Zealand as prices dipped following increases during the Christmas and school holiday periods in December and January.”

Food has also seen increases as the cost of living soars. “A shortage of potatoes due to wet weather in key growing regions late last year has continued to place pressure on prices for potato products, including takeaway hot chips, potato crisps and frozen potato products. Vegetable prices rose due to some salad vegetables, like tomatoes and lettuces, coming out of season,” said Ms Marquardt.

However, it’s not all bad news, as the rises are reportedly easing.

Ms Marquardt added: “CPI inflation slowed in the June quarter, with the quarterly rise being the lowest since September 2021. While prices continued to rise for most goods and services, there were some offsetting price falls this quarter, including for domestic holiday travel and accommodation and automotive fuel.”