Australia's unemployment rate has inched up slightly, increasing the odds of an August rate interest rate cut.
The Australian Bureau of Statistics (ABS) revealed its latest unemployment figures Thursday, showing that Australia's unemployment rate lifted slightly to 4.2% in June, up from 4.1% the previous month. On a seasonally adjusted basis, the figure climbed even higher, hitting 4.3%. That means there's an additional 33,000 Australians out of work.
Despite the uptick in unemployment, labor force participation also saw a modest rise. The seasonally adjusted participation rate increased to 67.1%, up from 67% the month prior, suggesting more people are actively looking for work.
While the numbers are not promising for job seekers, they are for mortgage holders and investors, many of whom were dismayed by the Reserve Bank of Australia's (RBA) surprising hold on the official cash rate (OCR) earlier this month.
The nation's central bank said it was in wait-and-see mode before it would reduce rates again, leading market players to hope for an August rate cut.
"It definitely does strengthen the case [for an August rate cut]," Harry Ottley, an economist at Commonwealth Bank (CBA) told Australian Broker. "And it would take a pretty big surprise on the CPI now for them to not do so. It's looking like a pretty good bet."
Belinda Allen, also of CBA, added in a note that June's unemployment numbers are at their highest since November 2021.
"The labor market appears to be cooling from very tight levels," the senior economist wrote, noting that the unemployment data suggests "one hurdle has now been removed for an August rate cut."
The ABS will release its next quarterly consumer price index (CPI) on 30 July, a pivotal moment for the RBA ahead of its next decision on monetary policy.
That leads all eyes to the July CPI print, a key test that could determine whether the RBA pulls the trigger on its third interest rate cut in 2025.
Following the central bank's July decision to hold rates, RBA governor Michele Bullock made it clear: the decision was a question of timing, not direction. Rates will come down, she said, but only when the data confirms it's safe to move. The board is opting to wait and see, holding out for stronger evidence that inflation is sustainably under control.
The RBA has consistently targeted an inflation band of 2% to 3%. Encouragingly, the March quarter CPI (released in April) showed trimmed mean inflation – a preferred measure that excludes volatile price swings – fell to 2.9%, down from 3.3% in the December quarter. That’s the lowest level since December 2021, and a sign that inflation may finally be settling into the RBA’s comfort zone.
Meanwhile, the slight uptick in unemployment suggests that wage pressures may be easing.
"When the labor market is strengthening, or strong, it means that the RBA is worried about creating inflation pressure," Ottley said. "But if it's loosening, or weakening, it means there's less risk of inflation being an issue."
The RBA’s decision to hold rates at 3.85% earlier this month caught markets off guard. Many observers – including all of Australia's Big Four banks and a broad consensus of economists – had expected a 25-basis-point cut.
The move also disappointed homeowners, many of whom are grappling with rising living costs, a housing shortage and soaring property prices.
Still, the RBA defended its decision, citing the uncertain economic outlook, both in Australia and abroad, as a key reason to wait for more data before making its next move.
The RBA meets for its next meeting on monetary policy on 11 and 12 August.
