Tight labour market to keep RBA on the sidelines

Following yesterday's blockbuster jobs report, financial markets have come around to our view that the Reserve Bank of Australia won't loosen policy before the first half of next year. That's a stark turnaround from just a few weeks ago, when investors were betting that rate cuts would be on the table by year-end. That said, it's important not to overstate the upside risks to inflation stemming from a tight labour market. We still expect wage growth to moderate appreciably over the coming quarters. And while unit labour cost growth will be slower to fall back, we suspect firms will struggle to pass on cost increases to consumers in the face of weak domestic demand.