Toward unemployment’s ‘natural’ rate

Australia’s labour market continues to show signs of gathering momentum. While there is still spare capacity in the labour market, it is slowly being absorbed. As the unemployment rate trends lower, it approaches its ‘natural’ rate. The ‘natural’ rate of unemployment is one where price and labour cost inflation are steady and in line with long-run expectations – the labour market (and wider economy) has reached its long run trend growth profile. Given the current slack in the labour market, we can be confident that wage and price inflation will increase as we head toward full employment.

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