The latest labor data increases the likelihood of a rate hike, experts warn

The continued strength of the national labor market has increased the likelihood of this another interest rate increase in the coming months, experts say.

Australia unemployment rate remained stable at 4.1 per cent in January and almost 18,000 jobs were created, according to Australian Bureau of Statistics (ABS) data released on Thursday.

While the numbers were slightly below expectations, they are still strong from a historical perspective, especially compared to December’s bumper release, which showed 65,000 additional jobs had been created.

AMP chief economist Shane Oliver said these figures together raise the risk of a second rate hike in 2026 – especially when combined with recent high inflation rates.

“The labor market remains reasonably strong… this further deteriorates the prospects for a rate cut,” he said.

Although official data had yet to be released, government spending on public sector positions likely kept the labor market tight, Oliver added.

Other economists agreed that the jobs data would make a rate hike more likely.

“In our view, the Reserve Bank will raise cash rates further, most likely in the first half of this year, to combat inflationary pressures, including those arising from the labor market,” said EY chief economist Cherelle Murphy.

Most analysts expecting a rise think it will happen in May, rather than at the next Reserve Bank of Australia (RBA) board meeting in March.

The ABS data shows that the number of people in full-time employment increased by 50,000, but this was partly offset by a fall in the number of part-time workers by 33,000.

Treasurer Jim Chalmers said the labor market remained resilient during a challenging economic period.

“The unemployment rate has remained stable at 4.1 percent, meaning it remains at very low levels by historical standards and participation remains near record highs,” he said.

But opposition spokeswoman Jane Hume said the data showed Australians were working harder while real wages were declining.

“Australians are doing their bit, they are showing up to work, they are taking on extra hours, and in many cases they are juggling multiple jobs, but they are still falling behind,” she said.

The RBA has warned about the tightness in the country’s labor market – a concern that January figures will do little to allay.

A number of other crucial data points will be released before the RBA’s next interest rate decision, including inflation figures later in February.

The central bank raised the official cash rate by 25 basis points at its meeting in early February, imposing further pain on borrowers in a bid to tackle rising inflation.

Pay figures released on Wednesday showed pay packages were not keeping pace with inflation.

Seasonally adjusted wages rose to 3.4 percent for the year to December, but below 3.8 percent for annual inflation.

It is the first time since September 2023 that there has been a decline in real wages.

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