Australia’s unemployment rate has remained surprisingly steady at 4.1% in January 2026, defying expectations of a slight increase. While the steady jobless rate might sound reassuring, it raises important questions about the economy and what’s next, especially with the Reserve Bank of Australia (RBA) closely watching the labor market. So, what does this mean for the economy, and could it lead to another interest rate hike?
Strong Job Growth, But a Shift in Part-Time Work
Despite economic challenges, Australia added 50,000 full-time jobs in January, reports ABS. That’s a solid win for the labor market, showing that more people are securing stable, full-time employment. However, there’s a bit of a twist: part-time employment fell by 33,000. It’s unclear whether this reflects seasonal changes or a deeper shift in the nature of work, but it’s worth noting. Many part-time workers, especially in industries like retail or hospitality, have faced more uncertainty lately as businesses continue to adjust to changing economic conditions.
Meanwhile, the participation rate fell slightly to 66.7%, 0.6 percentage points lower than the record high from January 2025. This suggests that while job growth is strong, fewer people are actively looking for work. So, while unemployment is low, there are still underlying shifts happening beneath the surface.
A Rising Underemployment Concern
On the flip side, the underemployment rate, which tracks workers who want to work more hours, has increased by 0.2 percentage points to 5.9%. Youth underemployment jumped even more—up 1.0 percentage point to 14.8%. For younger Australians, this means that while they’re employed, they may not be getting the hours or stability they need to build a solid career. The challenges of underemployment aren’t just about the jobless rate—it’s about how many Australians are working, but not enough to make ends meet.
The RBA’s Dilemma: Will We See Another Rate Hike?
While the job numbers are solid, they also have an unintended consequence. With the labor market still going strong, it gives the RBA more reason to hike interest rates to curb inflation. Many economists, including Oxford Economics’ Harry Murphy Cruise, believe that the resilience of employment and wages could tip the RBA’s decision in favor of another rate hike later in the year. It’s a delicate balance, though, as any further tightening could have a negative effect on consumer spending and borrowing.
In March, the RBA is expected to keep interest rates at 3.85%, but by May, analysts predict a potential rate rise to 4.10%, following a fresh batch of inflation data. The central bank is clearly keeping a close eye on employment figures, and it’s likely that ongoing strong labor market performance will influence future monetary policy.
What Does the Future Hold?
The current stability in the labor market is a mixed blessing. While it signals economic strength, it also keeps inflationary pressures alive, which may lead the RBA to keep tightening. For Australians, this means the cost of borrowing could remain high for some time. Whether that will slow down the housing market or discourage consumer spending remains to be seen. But as long as the labor market remains resilient, the RBA’s job isn’t getting any easier. It’s going to be a balancing act, and it’s clear that the outlook for 2026 is anything but certain.
