Australia’s persistent good news on the jobs front is probably bad news for inflation and interest rates, but the only thing that could save those in debt worried about loan repayments would be a low Consumer Price Index reading on Wednesday. However, if that happened, we’d have to start rewriting our economics textbooks!

CommSec’s Craig James said it all: “Can Australia maintain an unemployment rate of 3.5% (a near 50-year low) and still achieve an inflation rate of between 2-3 per cent?” he asked. “Most observers are rightfully sceptical. So, unless the data next Wednesday shows a sharp fall in the inflation rate, another rate hike will need to be pencilled in for the August 1 Reserve Bank Board meeting.”

The only good news he added later was this: “These two releases (CPI on Wednesday and retail on Thursday) will further guide our thinking but our base case remains that the RBA will increase the cash rate by 25bps at the August board meeting. We feel this will be the final hike of this cycle, meaning a terminal rate of 4.35%.”

One more rise ahead is good news, but the bad news is that economists have been terrible in predicting the top of the interest rate cycle and the impact of interest rate rises on the economy.

In case you missed it, unemployment remained the same at a low 3.5% with the jobs created coming in at 32,600 in June, which was a lot higher than the 15,000 expected by economists.

This is too resilient a labour market to expect inflation to fall dramatically and the history of economics has taught us that when unemployment rises, inflation falls. That’s why new RBA Governor Michelle Bullock has told business audiences in the past that the jobless rate has to go higher to bring inflation down, which would stop interest rates marching higher and inevitably lead to rate cuts.

This is why the numbers yesterday are bad for interest rate worriers and only a new kind of economics could stop the RBA from going for another rate rise in two Tuesday’s time!

I do my best to challenge conventional and often too negative economic and market thinking, but it’s hard to find strong reasons for the RBA to ignore these number, but I’ll try!

Here’s what I find hard to ignore: NSW, the country’s largest state saw the jobless rate fall to 2.9% and this is, wait for it, the lowest reading on record! Queensland saw a 0.3% fall to 3.6%, WA dropped 0.1% to 3.6%, Tassie slipped 0.7% to 3.5%, while Victoria was steady at 3.7%. South Australia had a 0.2% increase in unemployment to 4.2%, while the ACT and NT saw rises to 3.3%.

Only if economics was turned on its head could we see inflation fall without a notable rise in unemployment. And given the fall in unemployment and the rise in jobs created, it doesn’t look good for interest rate worriers. That said, inflation in the US fell to 3% last month, so let’s look at the chart for US unemployment.

Interestingly, there hasn’t been a big spike in the jobless rate there. It’s only gone from 3.4% to 3.6%, which is statistically nothing.

The similar flat line of little ups and downs in unemployment make me hopeful that we could get a better-than-expected inflation reading on CPI day next Wednesday. However, I wouldn’t be putting a real lot of money on it.

I do believe we’re living a different kind of economy than the one that would say if unemployment is low, you have to expect high inflation. Why? Try these new age things we live with:

1. The internet and its productivity implications.
2. The mobile phone.
3. Technology that delivers Zoom, electric cars, and online transactions.
4. The work-from-home trend.
5. You can use the online world to buy anything from anywhere, including workers!
6. And so on…

All these innovations change the economies that we economists try to understand, and next week’s CPI will be an interesting test. If it falls with unemployment at 3.5%, then we might have to start rewriting our textbooks!