Unemployment rate drops to 4.1 per cent
The Australian job market has shown unexpected strength, with the unemployment rate falling to 4.1 per cent in December. According to data released by the Australian Bureau of Statistics on Thursday, the economy added 65,200 jobs during the month. This development has reignited discussions about potential interest rate hikes by the Reserve Bank of Australia (RBA).
Labour force data is often volatile and typically requires careful interpretation by the RBA. However, the latest figures suggest that the jobs market remains tight, which could raise concerns for RBA Governor Michele Bullock.
The December drop in unemployment brought the quarterly average down to 4.2 per cent. This is slightly below the RBA’s November forecast of a 4.4 per cent unemployment rate for the period. The result also surprised market economists, who had expected the jobless rate to remain stable at 4.3 per cent. Employment growth exceeded expectations, with the actual increase far surpassing the predicted 28,000 jobs.
Despite a slowdown in employment growth and a decline in job vacancy rates throughout 2025, the data shows that the gradual rise in the unemployment rate has stalled since mid-year. This suggests that the labour market may be stabilizing, but not yet showing signs of significant relaxation.
Treasurer Jim Chalmers acknowledged that the inflation outlook is “higher” than desired. However, he pointed out that recent inflation data showed a decrease more significant than what was anticipated by markets and economists. Chalmers emphasized that Australia has managed to maintain a strong labour market while making progress on inflation.
He welcomed the lower unemployment rate, higher participation, and the creation of tens of thousands of jobs. “This result is welcome and highlights the resilience of our labour market at a turbulent time for the global economy,” he said.
Harry Murphy Cruise, head of economic research at Oxford Economics Australia, noted that while one data point should not be overemphasized, the likelihood of a rate hike is increasing. He suggested that next week’s inflation data will be crucial in determining the RBA’s next move.
“The magic number for trimmed mean inflation is 3.2 per cent. Anything above that will warrant a hike when the RBA board next meets in early February. Anything at or below should be enough for the board to hold rates steady—at least until the next meeting.”
Expectations for a rate hike have risen in recent months due to a resurgence in inflation. Before the release of the data, money markets had fully priced in a 25-basis-point increase by August, with traders suggesting a quarter chance of a hike in February. After the release, the odds of a February hike increased to over 50 per cent, according to IG Markets analyst Tony Sycamore.
“The RBA’s key concern here will be that this tightness will feed into wage growth and, more broadly, into inflation within an Australian economy where price pressures are already uncomfortably high,” he said.
Despite a 30,000-person drop in unemployment, the increase in employed individuals led to a slight rise in the participation rate to 66.7 per cent, according to Sean Crick, head of labour statistics at the ABS. A near-one-percentage-point fall in youth unemployment was a major factor, suggesting that seasonal factors during the holiday period might have influenced the results.
