Australia’s labour market softened more than expected in July, with the unemployment rate rising 0.1% to 4.5%, its highest level since late 2021. The result signals that labour market conditions are softening after a period of strong employment growth, although the underlying trend remains relatively resilient and does not yet point to a sharp deterioration in labour demand.
The ABS reported a fall in employment of 15,800, short of expectations for a 12,000 increase, while the underemployment rate rose to 6.4%, its highest level in two years. Hours worked also fell, while the participation rate declined 0.2% to 66.9%.
The broad-based weakening in labour market conditions suggests that the three consecutive interest rate hikes are beginning to filter through the economy. The release follows Wednesday’s wages data, which showed private-sector wages growth slowing to 3.1% year on year in June, its weakest pace since 2022. Together, the data indicate that labour demand and wage pressures are assisting the disinflation process.
For the RBA, the data reduces the immediate need for further tightening, although the case for another hike later this year remains open. The unemployment rate has reached the RBA’s end-2026 forecast earlier than anticipated, but the RBA continues to view labour market conditions as relatively tight and has indicated that further moderation in demand is required to bring inflation sustainably back to target. This was reflected in bond markets, where expectations for a rate hike before year-end eased only modestly following the release.
Overall, the July release supports an extended interest rate hold. However, with underlying inflation still above target, the RBA will require further evidence of slowing domestic demand before fully ruling out another increase. Next week’s July inflation data will provide a stronger indication of the near-term policy outlook.
Source: Labour Force, Australia, July 2026.