Labour market tightness adds further pressure on RBA to commit to rate rise
The Australian jobs market is in substantially better shape than previously assumed.
According to the latest data provided by the Australian Bureau of Statistics (RBA), the unemployment rate fell to just 4.1% in December 2025. This was simultaneously lower than the previous months and far lower than the 4.4% rate expected by market analysts.
Over 65,000 new workers were added to the workforce in December, thwacking the 30,000 forecast.
"This month we saw more 15-24 year olds moving into employment, contributing to the rise in overall employment and the fall in the unemployment rate,” noted ABS head of labour statistics Sean Crick.
For all ages, the male underemployment rate fell by 0.8 percentage points to 4.6%, while female underemployment rate fell by 0.1 percentage points to 6.9%.
Alongside inflation and house price data, the unemployment rate has been closely watched ahead of the Reserve Bank of Australia (RBA)’s upcoming cash rate call on 3 February.
The Monetary Policy Board has stressed that it is taking a data-driven approach to setting central bank rates. In other words, today’s jobs data has increased the likelihood of a 25-basis-point rate hike when the Board convenes in less than two weeks.
As the high-stakes RBA call approaches, there is little consensus of whethe a hike or pause is in store.
“While it’s good news that Australians are fully employed, this is another indicator of a robust economy and inflation levels that are still too high for the RBA,” VanEck head of investments Russel Chesler said. “We’re now closer to an RBA rate rise,” he added.
However, ANZ analyst Aaron Luk and Adam Boyton were less phased by the new data.
"Looking forward, we don’t think the decline in the unemployment rate in December marks the start of a new trend given the softness in measures of labour demand. We also don’t expect the RBA’s forecasts in the upcoming (Statement on Monetary Policy) to show an ongoing decline in the unemployment rate from here," they said.
Among the major banks, Commonwealh Bank is predicting a 25-basis-point hike, NAB predicts as many as two cash rate hikes could be on the agenda in the first half of 2026, while Westpac and ANZ have kept their forecast on hold at 3.6% for the moment.
Attention now turns to the next round of inflation data, due next Tuesday, to a clearer picture of where the national's economic state is heading.
