RBA's Price Stability Obsession Threatens Full Employment

The Reserve Bank of Australia (RBA) has raised interest rates again to combat inflation, but critics argue that its focus on price stability is neglecting full employment.

According to RBA Governor Michele Bullock, 'full employment' means low and stable inflation, which is inconsistent with the current unemployment rate. However, this definition of full employment seems to prioritize inflation control over job creation.

Bullock said that the RBA would consider putting the economy into recession if necessary to achieve its inflation target of 2.5%. This has sparked concerns among economists and experts who warn that recessions can have devastating effects on jobs and the economy, especially for vulnerable groups such as the unemployed.

The current inflation rate is 4%, mainly driven by petrol prices due to the war in Iran and a boom in datacentres. Bullock acknowledged that these factors are abnormal and may lead to higher inflation expectations, but she emphasized that the RBA's priority remains getting inflation under 3% regardless of what causes it.