Australia’s Tight Labour Market Keeps Rate Hike Pressure on RBA
Australia’s unemployment rate held steady at 4.1 per cent in January, defying expectations of a slight increase and adding to the pressure on the Reserve Bank of Australia (RBA) to consider further interest rate rises. The latest figures, released on Thursday, February 19, 2026, indicate a persistently tight labour market despite previous rate hikes aimed at cooling the economy.
Job Growth and Full-Time Employment
The Australian Bureau of Statistics (ABS) data revealed an increase of 17,800 employed people in January. A significant portion of this growth came from full-time positions, with a rise of 50,000, partially offset by a decrease of 33,000 in part-time employment. This shift towards full-time perform suggests a strengthening, rather than weakening, of the labour market.
Trend Data Paints a Similar Picture
Looking at trend data, which smooths out seasonal fluctuations, the unemployment rate even edged down to 4.1 per cent in January – a nine-month low. This reinforces the narrative of a resilient labour market that is proving difficult to slow down.
Economist Reactions and RBA Considerations
Economists believe the continued tightness in the labour market will prevent the RBA from shifting its focus away from upcoming inflation data. David Bassanese, BetaShares chief economist, noted that the failure of the labour market to weaken keeps further interest rate hikes on the table. The RBA recently increased rates to 3.85 per cent earlier this month, responding to a pick-up in inflation.
Government Perspective
Treasurer Jim Chalmers highlighted the positive aspects of the data, stating that Australia has seen the lowest average unemployment rate for any government in 50 years. He also pointed to comments from RBA Governor Michele Bullock acknowledging the strength of the Australian labour market compared to other nations.
The RBA’s Balancing Act: Inflation vs. Employment
Recent communications from RBA officials have emphasized the positive aspects of the current economic situation, despite concerns about inflation. Governor Bullock has repeatedly stated that the economy is “doing okay,” with a robust labour market being a key strength. However, she also acknowledged the challenges posed by stagnant productivity growth and the need to maintain a balanced approach.
RBA Deputy Governor Andrew Hauser has explained that the bank’s strategy of not raising rates as aggressively as other countries has left the Australian economy closer to balance, and potentially more vulnerable to demand shocks.
AI and the Future of Work
While the labour market remains strong concerns are growing about the potential impact of artificial intelligence (AI) on employment. Workers like Melbourne-based solutions architect Ron Skruzny are finding it increasingly difficult to secure jobs, fearing that AI is automating tasks previously performed by humans. The rise in job advertisements in sectors like manufacturing, transport, and construction is not necessarily translating into opportunities for IT professionals.
What’s Next for Interest Rates?
The January unemployment figures have led economists to reassess the likelihood of further interest rate increases. BDO chief economist Anders Magnusson now believes a rate hike in May is likely, and even a March increase cannot be ruled out. The upcoming release of monthly inflation data by the ABS will be crucial in informing the RBA’s decision.
Marcel Thielant, head of Asia-Pacific at Capital Economics, emphasized that the persistently low unemployment rate and high wage growth will continue to put pressure on the RBA to tighten monetary policy.
FAQ
Q: What is the current unemployment rate in Australia?
A: The unemployment rate in Australia is currently 4.1 per cent as of January 2026.
Q: Is the RBA likely to raise interest rates again?
A: Economists believe there is a high probability of further interest rate increases, potentially as early as May 2026.
Q: What impact is AI having on the Australian job market?
A: There are growing concerns that AI is automating jobs, particularly in the IT sector, making it more difficult for some workers to uncover employment.
Q: What is the RBA’s view on the current economic situation?
A: The RBA acknowledges the strength of the labour market but remains focused on controlling inflation.
Did you understand? Australia’s unemployment rate has remained remarkably low, consistently below 4.5 per cent for an extended period.
Pro Tip: Stay informed about economic data releases and RBA announcements to understand the potential impact on your finances.
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