Australia's unemployment rate has reached a five-year high of 4.7% in September, marking the highest level since the end of COVID lockdowns in October 2021. The rate has been steadily rising throughout 2026, climbing from 4.1% in January, indicating a slowing labor market. This shift has reduced the likelihood of an interest rate hike by the Reserve Bank of Australia (RBA), with market expectations dropping from 30% to 18% following the latest job figures.
The rise in unemployment was driven by a decrease in employment, with 39,300 fewer people employed in September. This decline was partially offset by 31,400 fewer people actively seeking work, resulting in 8,900 more unemployed individuals. Despite the overall drop in employment, full-time employment increased by 34,300, while part-time employment fell by 73,600, pushing the underemployment rate up to 6.3%. These trends signal a weakening labor market.
The RBA faces a challenging decision at its upcoming November meeting, balancing its dual mandate of price stability and maximizing employment. The recent data suggests that the RBA's four rate hikes in 2026, which raised rates from 3.6% to 4.6%, are starting to impact the labor market. RBA Governor Michele Bullock had previously warned that unemployment might need to rise further to ease inflation pressure, a prediction that now aligns with the current 4.7% rate.
The International Monetary Fund had forecasted that Australia's unemployment rate would peak at 4.7% in 2027, a target already met. As the effects of this year's interest rate increases continue to unfold, the RBA must decide whether further rate hikes are necessary to control inflation or if the current measures are sufficient to avoid pushing unemployment closer to 5% or higher.