Article by Thomas Henry – Matthew Cranston, courtesy of The Australian
20.02.2026
More than 17,000 jobs were created in the economy in January, keeping the unemployment rate at 4.1 per cent, and leaving Anthony Albanese and Jim Chalmers facing the likelihood the Reserve Bank will lift interest rates again this year amid re-emerging inflation pressures.
The jobless figure came in slightly lower than economists’ expectations that 20,000 jobs would be gained and that the unemployment would edge up to 4.2 per cent.
The low unemployment rate keeps pressure on the RBA as a tight labour market means it is unlikely to soften its approach of another interest rate rise this year. Financial markets are expecting another 0.25 percentage points by August.
The latest Australian Bureau of Statistics figures were released a day after real wage growth went backwards for the first time in more than 2½ years, keeping pressure on the Treasurer’s economic management.
Westpac economist Ryan Wells said the fall in unemployment was about declining participation rate – the percentage of working-age people employed or actively looking for work – which remained steady in seasonally adjusted terms at 66.7 per cent, but declined based on trend.
“The recent falls are all about participation – if the participation rate had held steady over the past six months then, all else equal, the unemployment rate would be 4.5 per cent rather than 4.1 per cent,” he said.
Mr Wells said that although the RBA might see this as further evidence of a tightening labour market it had to consider the falling participation rate.
“Today’s data is likely to make the RBA a bit more nervous regarding the inflation outlook,” he said. “Given they still view the labour market as tight, any evidence of a possible ‘re-tightening’ in labour market conditions would raise some concern about inflation’s persistence. This is ultimately up to interpretation, but we are hesitant to suggest that recent labour market data implies a ‘re-tightening’ in conditions, especially given yesterday’s benign result on wages growth.”
Westpac had forecast as many as 40,000 additional jobs.
The figures showed full time employment grew by more than 50,000 jobs but that was balanced with a decrease in part-time employment of 32,700. The latest data does not give a split between public and private-sector jobs, where recent wage data showed public sector wage growth was up 4 per cent in the past year, ahead of the private sector.
Late last year AMP’s deputy chief economist Diana Mousina noted the expansion of government jobs. “Over the past year, the non-market sector (healthcare and social assistance, education, and public administration), which serves as a strong proxy for public sector employment, accounted for an extraordinary 93 per cent of total jobs growth,” she said.
Commonwealth Bank senior economist Ashwin Clarke also thinks the falling participation rate might be considered but the RBA would take “cold comfort” from the latest figures and lift interest rates to 4.15 per cent in May. “We think the response of the participation rate to the recent uptick in inflation and tighter monetary policy will be important to watch,” he said. “This will likely be cold comfort for the RBA. The labour market was already a little too tight for the RBA and the new data suggests that the momentum was slightly stronger than first thought. The release reinforces our expectation that rates will be increased by the RBA in May and that the risks sit for further rate increases from there.”
Citi’s Faraz Syed and Josh Williamson said they expected higher inflation to force more people into second jobs. “Rising cost-of-living expenses also suggest that multiple job holders could rise in 2026,” they said. “All this could conspire to raise labour supply throughout 2026, and see the unemployment rate pick-up in second half. But for now, there is greater chance of the labour market tightening in the near term than loosening.”
