The governor of the Reserve Bank of Australia is confident unemployment will start to fall this year.



The unemployment rate in January hit a 10-year high of 6%, and most forecasters, including the RBA, say it will go higher.

RBA governor Glenn Stevens on Friday told a parliamentary committee he expects unemployment to peak later this year.

“Unemployment will rise further; I would hope not too much further,” he said in Sydney.

“I’d say the unemployment rate will edge up a little bit further yet, before we see it peak some time this year.”

In recent months, new data has shown economic growth has been strengthening but employment growth has still been weak.

Stevens was asked how long it takes the labour market to respond to changes in economic activity.

“Output leads employment. I’d say that would be true in the future and I’d say, probably, one to two quarters,” he said.

Stevens re-affirmed the RBA’s forecasts that economic growth will soon pick up and get above 3%.

He also played down the December quarter spike in inflation.

The consumer price index (CPI), a key measure of inflation, rose 2.7% in the year to December.

“We’ve had a little bit faster flow-through of the effects of the exchange rate,” the RBA governor said.

RBA assistant governor of economics Christopher Kent said later in the testimony that non-mining investment will pick up in the 2014-15 financial year.

“What we hear is that business still have quite a degree of caution about their investment plans,” Kent said.

“It’s a bit unlike periods in the past, where they may have said they have an expectation of slightly better times in the future; let’s commit to some more investment on the back of that expectation.

“Now they’re saying they want more tangible increases in conditions here and now.”