With unemployment staying low at 4.1%, January’s inflation figure out next Wednesday better say prices are starting to fall or get ready for another rate rise, maybe in March!

Australia copped good news yesterday, with unemployment not rising and staying at a low 4.1%. Simultaneously, however, mortgage holders heard that this statistical revelation means those praying for no more interest rate rises are probably wasting their time. However, there is one hope, and it comes next week.

This line of hope is the Consumer Price Index reading for the month of January, which is released next Wednesday. This statistic on how inflation is going better say that price rises are starting to fall or the RBA will line up for another rate rise, maybe as early as March 6!

If that CPI number is promising, then the central bank rate watchers could give us the benefit of the doubt and wait to see a couple of months of economic data. This could give those in debt a two-month break from rate rises. Why two months? As there’s no meeting in April, May 19 will be the ‘make it or break it’ day for another rate rise.

However, this case would have been easier to make if unemployment had snuck up a bit, instead of staying at 4.1%, with 50,000 full-time jobs created in January. Sure, part-time jobs fell by 33,000, but the rise in full-time positions is a plus for the economy’s strength and implies that inflation could be remaining stubbornly high.

This is why that CPI number next Wednesday will be a big news story. By the way, while monthly inflation was once seen as less reliable, changes in how inflation is calculated has made this statistic more credible.

BetaShares chief economist David Bassanese got it right yesterday when he told the abc.net.au: “From the Reserve Bank’s perspective, the failure of the labour market to weaken means it will not be able to shift its gaze away from upcoming inflation data.”

The good jobs number has Treasurer Jim Chalmers crowing that “under our government, we have seen the lowest average unemployment for any government in 50 years”. While that’s true, Treasurers and Reserve Bank Governors, like Michele Bullock have two jobs to do.

The first is to avoid high unemployment. And the second is to maintain price stability, which is eco-speak for keeping inflation down.

Doing one or the other is easy. To bring unemployment down, these two leaders of economic policy need to spend a lot in the Budget and cut interest rates, both of which has been done. That’s why unemployment sits nicely at 4.1%.

However, to pull off low inflation, our policy leaders need to restrict spending and not cut rates too early and too quickly, neither of which hasn’t been done.

The only hope for those wanting a rate cut is that inflation is falling for other reasons, such as a rising Aussie dollar, mortgage-stressed consumers spending less and productivity rising, which reduces business costs.

While this latter hope is highly unlikely, I guess Artificial Intelligence down the track will be a deliverer of the kinds of productivity uplifts that many businesses could not achieve with real people under prevailing workplace relation laws.

Lately, the RBA Governor has been putting a positive spin on the job market by arguing the following about our economy: “It can't grow really strongly because productivity's not growing, but the labour market is holding up, it's still a little bit tight, and this is good news — in fact, it's much better news than some countries overseas have seen with their labour markets."

Bullock’s Deputy Governor, Andrew Hauser recently put our inflation/interest rate issue into historical perspective. "We had a different policy strategy to other countries," he said. "We didn't raise interest rates as far up during the COVID inflation boom, and that meant we were slower to bring them down as well. The consequence of that, and I think it's fair to say, is this economy is closer to balance than many of the other economies you might have in mind."

To be fair, current home loan interest rates are around where they have been in the past, but in those days the average size of mortgages was much smaller because house prices were way lower.

The only real plus from that low unemployment number was that at least those with a mortgage should be able retain their jobs to pay the likely higher interest rates in the future.

But there is one economic curve ball that I should shine the light on. You see, unemployment figures are notoriously lagged because business owners don’t instantly lose great workers when business slows. They wait to see if the downturn in business is going to be sustained before they let go of employees who they have trained and in turn who have helped the business. This could be one reason why the RBA might decide to wait until May before they potentially raise rates. Next week’s CPI is a big watch for interest rate worriers.