Unemployment Hits Five-Year High as RBA Prepares to Hike Cash Rate

The Australian unemployment rate rose to 4.6% in August, its highest level in five years, according to the Australian Bureau of Statistics (ABS). However, economists at two major banks, Commonwealth Bank CBA and ANZ, believe this will not deter the Reserve Bank of Australia (RBA) from increasing the cash rate next Tuesday.

The participation rate increased by 0.2 percentage points to 67.1%, matching its highest level on record, with more Australians looking for work rather than being jobless. The quality of jobs added was mixed, with part-time employment rising by 46,000 people in August while full-time employment fell by 6,000.

Commonwealth Bank CBA senior economist Ashwin Clarke said cost-of-living pressures were driving more people into the workforce, and employment growth remains solid. ANZ senior economist Jasmine Zheng noted that the RBA has signalled it is prepared to tolerate a softer labour market, and the current unemployment rate of 4.6% is still within its target range.

Major banks are holding firm on their September hike calls, with both Commonwealth Bank CBA and ANZ expecting a 25-basis-point increase in the cash rate next Tuesday. This would lift the cash rate from 4.35% to 4.6%. With all four major banks now tipping a September hike, the debate has shifted to what comes next, with ANZ predicting a further 25 basis point increase in November.