Australia’s labour market remained resilient in January, with more than 17,000 jobs created and the unemployment rate holding steady at 4.1%, reinforcing expectations that the Reserve Bank of Australia (RBA) will stay focused on inflation risks.
The latest Australian Bureau of Statistics (ABS) data showed employment rose by 18,000 people in January, slightly below economists’ forecasts of a 20,000 gain. The jobless rate was unchanged for a second consecutive month, defying expectations of a modest rise to 4.2%.
Betashares chief economist David Bassanese said the solid employment gains in both December and January confirm the labour market “remains in rude health”.
He noted the steady unemployment rate follows a drop from 4.3% in November and aligns with a modest strengthening in hiring indicators late last year.
“From the RBA’s perspective, the failure of the labour market to weaken means it will not be able to shift its gaze away from upcoming inflation data,” Bassanese said.
Based on the central bank’s own forecast of a 0.9% quarterly rise in trimmed mean inflation in the March quarter, Bassanese argues the “base case” is that another interest rate increase may be required at the May meeting.
“The only reprieve for concerned mortgage holders would be a notable decline in inflation, which is possible if last year’s price gains were driven more by one-off factors than by underlying demand pressures,” he added.
RBA minutes point to ‘too tight’ labour market as inflation risk lingers
The January breakdown showed full-time employment rose by 50,000, partly offset by a 32,700 decline in part-time roles. The participation rate remained steady at 66.7%, just below Westpac’s forecast of 66.8%.
Despite the softer-than-expected headline figure, the near-historic low unemployment rate underscores the tightness of the labour market, a key concern for policymakers wary of persistent inflation pressures.
The RBA lifted the cash rate by 0.25 percentage points to 3.85% at its February meeting after inflation accelerated in the second half of last year. Board minutes revealed policymakers judged the labour market had been “a little tighter than consistent with full employment”, supporting the case for further policy tightening as demand continued to exceed supply.
“The pick-up in inflation and steadying of conditions in the labour market had also suggested that monetary policy was not restrictive overall,” the minutes said.
While some measures of labour market slack edged higher in January, including youth underemployment, the ABS cautioned there was statistical noise in the data. Youth underemployment rose 1 percentage point to 14.8%, largely reversing the prior month’s decline.
The employment figures were released a day after data showed real wage growth turned negative for the first time in more than 2½ years, adding to scrutiny on Treasurer Jim Chalmers’ economic management.
For now, the RBA expects the labour market to remain tight in the near term before gradually easing as slower economic growth takes effect. Its latest forecasts project the unemployment rate will drift higher over coming years, settling at around 4.6% by mid-2028.
Until clearer signs of cooling emerge, however, the strength in jobs data is likely to keep pressure on the central bank to maintain a firm stance on inflation — and leaves the prospect of another rate rise firmly on the table.