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The unemployment rate must fall below 4.5 percentage points to stop the RBA cuts


"It will help with faster progress in reducing unemployment and achieve safer progress toward the objective of inflation," says the RBA council statement.

In his speech, Dr. Ellis spoke of the RBA model to estimate the rate of accelerated non-accelerated unemployment (NAIRU): the unemployment rate below which the growth of wages begins to increase.

Model data show the NAIRU estimate of 4.4%. By rounding this figure, Dr. Ellis confirmed the newest lowest estimate.

"Therefore, we have gradually reviewed the NAIRU forecast in force from 5.5% a few years ago to 4.5% now," said Ellis.

"There is uncertainty about the NAIRU estimate, even when we assume this model of relationship between wages, inflation and the unemployment gap is the best model.

Dr. Ellis also raised the perspective that NAIRU, which has been falling for the last 40 years, could fall further below the new estimate and that this measurement was one of the "invisible" data types of economists.

"We could look back in a few years and realize that the NAIRU is even lower than we thought today? There is no way to know for sure until we get there, but I will not rule it out," he said.

Salaries grow at 2.3% per year, but economists say that is not enough to prevent RBA from reducing interest rates. While current unemployment is 5.2 percent above the bank's 5 percent forecast and it is still good at 4.4 percent to see the significant increase in wage growth.

Ellis also noted that the bank would pursue the lowest unemployment rate as it helped meet its mandates.

"One of the mandates of the Bank is full employment. If it turns out that full employment is even more" complete "than we thought, achieving this would be a real contribution to our third term, the economic prosperity and the welfare of the Australian people."

Ellis said the decline in long-term unemployed was probably part of the cause of the loss of the NAIRU estimate.

"When the labor markets are gradually opening, it gives the possibility to stop people who already had long-term unemployed."

He suggested that NAIRU capture the types of unemployment that would remain, even when there is no spare capacity in the labor market and inflation is sustainable in the goal.

While NAIRU seems very far away, some economists have not renounced the relationship between unemployment and inflation globally known as the Phillips curve.

Bruce Kasman, JP Morgan's chief economist, said last month that the link was still intact.

"We have not yet given up the Phillips curve," said Kasman.

"We have not resigned, but we do not have the conviction that we would like."

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