January labour figures point to lingering inflation risks and a higher-for-longer rate path for borrowers
Australia’s jobs market firmed in January, with employment expanding faster than the number of people available for work and keeping conditions tighter than the Reserve Bank of Australia (RBA) is likely to welcome.
Total employment rose by 17,800 positions over the month, extending a strong result in December and underscoring that demand for labour remains resilient. The figures signal that wage pressures and inflation risks – and therefore the interest‑rate outlook – remain in focus.
A tighter labour market means fewer available workers for each vacancy, increasing competition for staff and lifting the risk of stronger wage growth. Higher wages can feed into inflation, raising the prospect that the RBA may need to maintain, or even increase, the cash rate to contain price pressures.
On a trend basis, the unemployment rate edged down to 4.1%, from 4.2% in December, once monthly volatility was smoothed out to show the underlying direction of the labour market.
“These figures confirm that the labour market was regaining momentum at the end of 2025 and into early 2026,” said Ashwin Clarke, senior economist at Commonwealth Bank. “While the monthly gains in employment look modest, the underlying trend shows the labour market remains a little too tight to bring inflation back to the RBA’s target midpoint.”
A modest decline in the participation rate also contributed to the lower jobless rate. Trend participation has been easing since late 2024, slipping from a peak of 67.1%. This may indicate that some of the cost‑of‑living pressures seen in 2022 and 2023 have moderated, allowing a small share of workers to step back from the labour force.
Trend employment rose by 24,700 in January. The trend underemployment rate was unchanged at 5.9%, close to its lowest level in about 30 years, pointing to limited spare capacity among people already in work.
The latest labour data were recorded before the RBA’s 25‑basis‑point cash rate increase in February. However, the continued strength in hiring suggests monetary policy may still have further work to do if inflation is to be steered back to target.
The release followed the Wage Price Index for the December quarter, which showed wages increasing by 0.8% over the quarter and 3.4% over the year. Public sector wages were a key driver, rising 4% through 2025, compared with 3.4% growth across the private sector. Persistent wage growth, particularly in government roles, will be watched closely by mortgage market participants assessing household income resilience and serviceability.
Economists at Commonwealth Bank said the figures indicate that, while the labour market has softened gradually, conditions remain stronger than the level the RBA associates with “full employment”. For housing finance, that combination of robust employment and elevated rates continues to shape borrower demand, refinancing activity and arrears outcomes.
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