The Reserve Bank’s decision to cut rates marks a historic moment. Never before have we managed to reduce inflation without a sustained experience of joblessness. In the past, curtailing inflation meant thousands of people thrown out of work – suffering the loss of income and dignity that comes with being unable to find a job. Now, for the very first time, we’ve managed to get price growth down without the human toll of mass unemployment.
To see how remarkable this experience has been, it’s worth going back through how past episodes of inflation have been handled.
In 1973, an oil embargo in response to the Yom Kippur War caused world oil prices to more than double. The global oil price shock pushed annual inflation in Australia to a peak of 18 per cent. Unemployment went up from 4 per cent to 6 per cent, leaving many Australians claiming unemployment benefits for the first time. The combination of double‑digit inflation and higher unemployment led to the term ‘stagflation’. Australia entered recession.
Inflation was briefly brought back down in 1977 before a second oil shock hit. The 1979 Iranian revolution caused a drop in global oil production. Again, oil prices doubled. Again, Australian inflation took off, with annual inflation exceeding 10 per cent. Again, unemployment rose – this time from 6 per cent to 10 per cent. In the early 1980s, Australia – like many other countries around the world – went into recession.
Inflation was brought under control, but only briefly. By the mid‑1980s, inflation began to increase again, averaging around 8 per cent for the second half of the decade. Unemployment, which had fallen to 6 per cent by the late‑1980s, spiked upwards. The early‑1990s recession, caused largely by Australia’s efforts to curb demand and reduce inflation, saw unemployment peak at 11 per cent. Factory workers in their 50s were laid off. Some would never work again. Among young people, 1 in 5 were unable to find work.
Fast forward to the post‑pandemic inflation spike, which has hit countries around the world. In 2023, the UK economy entered recession. In 2024, New Zealand entered recession, and finished the year with unemployment having risen to 5 per cent. Canada has also seen a significant rise in joblessness, with the unemployment rate rising through 2024, and now standing at nearly 7 per cent.
Comparisons with history and with other countries are always imperfect. Inflation isn’t the only challenge facing policymakers, and the world is a complex place. Yet as a nation, Australia should take a measure of collective pride in what we’ve done over the past 3 years. In mid‑2022, inflation was over 6 per cent. Now, inflation stands at 2.4 per cent – comfortably back in the Reserve Bank’s target band of 2 to 3 per cent.
Throughout the past 3 years, the unemployment rate has averaged around 4 per cent, a level that macroeconomists call ‘full employment’. The average unemployment rate under the Albanese government is lower than under any government in the past 50 years.
We often don’t notice the dog that didn’t bark. But in this case, it’s a ferocious dog with a cruel bark. Unemployment can break up families, and cause people to lose their homes. A prolonged bout of joblessness can have a scarring effect on a person’s career, leaving them earning less even a decade or 2 later. School‑leavers are particularly badly hit, with those who graduate high school in a slump unable to find work. When unemployment spikes, those who find it hardest to get a job are often people who were already doing it tough: people with fewer skills, older workers, and First Nations people.
Unemployment is one of the strongest predictors of whether a family will be in poverty, and growing up in a jobless household can have an adverse impact on children. Unemployment affects everyone. Wages grow more slowly when more people are looking for work. A higher rate of joblessness increases the welfare bill for all taxpayers.
In the 1970s, 1980s and 1990s, unemployment was the penalty Australia suffered for getting inflation under control. In recent years, other advanced countries have paid this same price. This time was different. As economist Saul Eslake puts it, we’ve done ‘something that has never been accomplished before in Australia, and which (arguably) hasn’t been accomplished in any of Australia’s peer group of “advanced” economies in the past few years’.
Since May 2022, the Australian economy has generated 1.1 million jobs, two‑thirds of them full‑time. 64.6 per cent of the working age population are in jobs, a record high. Real wages are growing again, increasing in each of the past 5 consecutive quarters.
That’s not to say the fight against inflation is done. Many Australians are still hurting, which is why the Australian Government is delivering cost‑of‑living relief like cheaper medicines, direct energy bill relief and making it cheaper to see a doctor.
Australia has done something unique: we brought inflation under control without mass joblessness, without a recession and while delivering back‑to‑back Budget surpluses. As a nation, we should be collectively proud.