Rising Labor Data Sparks Concerns Over Imminent Interest Rate Hike, Experts Caution

The robust performance of the national job market is increasing the likelihood of another interest rate hike in the near future, according to industry experts.

Recent data from the Australian Bureau of Statistics (ABS) revealed that the unemployment rate in Australia remained unchanged at 4.1% for January, with the creation of nearly 18,000 new jobs.

Although this figure slightly missed expectations, it remains notably solid, especially when compared to December’s impressive numbers, which showed an addition of 65,000 jobs.

Shane Oliver, chief economist at AMP, suggested that these employment figures, paired with recent high inflation levels, elevate the possibility of a second interest rate increase by 2026.

“The labor market is still quite robust, which diminishes the chances of any rate cuts,” Oliver commented.

While official data was yet to be released, government spending on public sector roles was likely keeping the jobs market tight, Oliver added.

Other economists agreed the jobs data would make interest rate increases more likely.

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

Most analysts who expect a hike believe it will happen in May, not at the Reserve Bank of Australia’s (RBA) next board meeting in March.

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

Treasurer Jim Chalmers said the jobs market was remaining resilient during a challenging economic period.

“The unemployment rate has remained steady at 4.1 per cent, meaning it continues to remain at very low levels by historical standards and participation remains close to record highs,” he said.

But Opposition workplace relations spokeswoman Jane Hume said the data showed Australians were working harder while real wages went backwards.

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

The RBA has been warning about tightness in the nation’s labour market — a concern the January figures will do little to relieve.

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 during its meeting at the start of February, imposing more pain on borrowers in a bid to tackle rising inflation.

Wage figures released on Wednesday showed pay packets weren’t keeping up with inflation.

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

It’s the first time there has been a drop in real wages since September 2023.

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