Unemployment is rising Down Under.
In seasonally-adjusted terms, Australia's unemployment rate rose to 4.5% in September, up from 4.2% in August, where it had held steady for the last two months, the Australian Bureau of Statistics (ABS) revealed on Thursday. It's also the highest level of unemployment in four years.
At the same time, the workforce participation rose slightly to 67% in September, up from 66.8% in August.
By state, New South Wales continues to have the most employed people, with more than 4.46 million people with jobs in seasonally-adjusted terms, followed by more than 3.81 in Victoria. Meanwhile, Victoria had the highest unemployment rate in September at 4.7%.
Although unemployment in Australia has remained historically low in recent months, the uptick suggests a potential softening in the labour market, which could increase the likelihood of future interest rate cuts.
"With a surprise increase in the unemployment rate to 4.5%, September’s labour force data point to an ongoing easing in the labour market," Aaron Luk, an economist at ANZ, wrote in a note. "The monetary policy decision in November will come down to the balance between the labour market and inflation. We suspect this labour force print will ultimately be outweighed by an uncomfortably high Q3 trimmed mean outturn later this month."
ANZ is anticipating the interest rates will remain on hold in November, but reduced during the Reserve Bank of Australia's (RBA) February 2026 meeting.
The RBA has already cut rates three times in 2025, the most recent in August. The continued rate declines offered relief to homeowners and property investors, many of whom have been contending with rising living expenses, limited housing supply and escalating property values.
But in a widely-expected move, the nation's central bank held the official cash rate (OCR) at 3.60% in September. The RBA reiterated that it has adopted a wait-and-see approach, signaling that any further monetary policy decisions will depend on upcoming economic data. This means inflation and employment will need to be within manageable levels, including the RBA target inflation range of 2% to 3%, before further monetary easing.
The latest quarterly consumer price index (CPI) in June confirmed that inflation is trending downward. Both headline CPI and trimmed mean inflation declined over the quarter, with annual CPI easing to 2.1%, down from 2.4% in the previous period, while trimmed mean inflation dipped to 2.7%, compared with 2.9% in the prior quarter.
Since then, markets have been deliberating the timing of the next rate cut, weighing whether it will occur in late 2025 or early 2026. Economists at several major banks have indicated expectations for a rate reduction in 2026.
RBA Governor Michele Bullock acknowledged to reporters during September's press conference, following the central bank's decision on monetary policy, that "we're in a very difficult position with the property market," referencing rising property prices and the nation's ongoing housing shortage.
But she added that the decision to hold rates in September was a "reasonably balanced decision" based on the data available.
Regarding future decisions, she said: "I'm not going to predict what the interest rate is going to be in the next three to six months. What we're focusing on [in the future] is an interest rate path that will deliver us inflation sustained with the band. That could mean a couple more reductions. It might not. I don't know at this point. And we'll look at all this again in November."
Bullock also suggested last month that stronger-than-expected consumer spending could add to inflationary pressures and delay further interest rate cuts.
Also on Thursday, Commonwealth Bank (CBA) released its latest CommBank Household Spending Insights (HSI) Index, showing that consumer spending was up 0.6% in September, month-over-month, or up 7.5% for the year.
"Spending remains solid across key categories," said Belinda Allen, head of Australian Economics at CBA. “While households are still navigating cost-of-living pressures, the foundations for spending growth are in place. The question now is whether this momentum will extend into summer, or if households will revert to a more cautious stance."
Allen added that the latest jobs report "complicates the story for interest rates. Markets have priced in a higher chance of a rate cut in November with around 18 basis points compared to around 10 basis points prior to the labour force release. There has been tension in the recent data flow for the RBA between activity, inflation and employment. Until the tension between inflation and labour market is resolved, we expect the RBA to remain cautious and watchful of the data flow. But today’s labour force figures add to the dilemma.
"Our base case remains that the last cut to the cash rate from the Reserve Bank of Australia will come in February," the economist said.
