Key Highlights

  • Unemployment has risen from 3.5 per cent to 4.6 per cent, with the latest increase a little more than expected.
  • The Governor said the rate remains quite low historically and the labour market is still a little bit tight.
  • The Financial Stability Review's severe scenario assumes unemployment of 6.3 per cent, a hypothetical stress test rather than a forecast.

Unemployment has risen by more than a percentage point over the past couple of years, but Governor Michele Bullock argues the rate is still low by historical standards and the labour market remains a little tight.

Two numbers frame the Reserve Bank's view of jobs: 3.5 per cent and 4.6 per cent. The first is where the unemployment rate stood a couple of years ago. The second is where it had climbed to by the time Governor Michele Bullock addressed reporters on 29 September 2026.

"The unemployment rate has risen from 3.5 per cent over the past couple of years to 4.6 per cent," the Governor said at her media conference that day, after the Monetary Policy Board raised the cash rate target by 25 basis points to 4.60 per cent. In the same breath she offered a characterisation that may surprise some: "the unemployment rate is still quite low historically," adding "we still think the labour market is a little bit tight."

For people who have lost jobs, or who are finding work harder to come by, a rise of 1.1 percentage points is not trivial. So why does the Reserve Bank of Australia (RBA) describe the result as low? And what does that mean as the Board approaches its 3 November decision?

A climb measured against history

The Governor's description rests on a long-run comparison. The phrase "quite low historically" judges today's unemployment rate against Australia's longer history, rather than only against the 3.5 per cent reading of a couple of years ago.

Seen that way, the move to 4.6 per cent represents a gradual return from extremely tight conditions rather than a collapse. The Board's own decision statement of 29 September, Media Release 2026-27, described the trend in measured terms: "Labour market conditions have eased broadly as expected in recent months".

There has been one notable development since. In her Opening Statement to the Senate Economics Legislation Committee on 28 October 2026, the Governor acknowledged the unemployment rate had recently been "rising a little more than we had expected". Even so, she told senators the labour market appears slightly tighter than previously judged and the share of the population with a job remains high. This article does not cite any unemployment figure beyond the 4.6 per cent the Governor quoted, as later labour force data is not part of the verified information available today.

Why the RBA tolerates a rising jobless rate

It may seem odd for a central bank to describe higher unemployment calmly. The explanation lies in the RBA's dual objectives. The Governor told senators the aim is to return inflation to the 2–3 per cent target range, using the midpoint as reference, with some flexibility on timing to balance full employment.

Inflation, however, is moving the wrong way. The Australian Bureau of Statistics (ABS) reported on 28 October that headline CPI rose 4.3% over the 12 months to September 2026, up from 4.0% in August. The trimmed mean, the measure of underlying inflation the RBA watches closely, was 3.6%, up from a revised 3.5%.

When inflation is well above target and the labour market is judged to be tight, some easing in labour demand is consistent with bringing price pressures back under control. The Governor said on 29 September that "Inflation is too high and has been driven by domestic capacity pressures." A modest rise in unemployment is one sign that those capacity pressures may be starting to ease, although the Board has not suggested they have eased enough.

None of this means the RBA is indifferent to job losses. Assistant Governor (Economic) Sarah Hunter said in her 60 Minutes interview, broadcast on 25 October 2026: "We're not trying to achieve a sharp stop or a really big downturn or anything like that." On recession risk, she said: "We don't see any signs of that yet in any of the data that we track."

What a much higher rate would look like

The RBA's October 2026 Financial Stability Review offers a useful contrast, though it is important to be clear about what it is. The review includes a severe but hypothetical stress scenario designed to test the resilience of the financial system. It is not a forecast.

In that scenario:

  • the unemployment rate rises to 6.3%
  • house prices fall 20%
  • the cash rate reaches 5.6%
  • inflation reaches 7%
  • GDP falls 1.4%.

Under those conditions, the share of mortgagors facing a cash-flow shortfall rises to about 5 per cent, compared with around 2 per cent of variable-rate owner-occupiers currently estimated to be in shortfall. Borrowers with a shortfall, low savings and negative equity at the same time would remain under 1 per cent.

The scenario helps put the current 4.6 per cent in perspective. The actual labour market has softened, but it remains a long way from the kind of shock the RBA uses to stress-test households and banks. The review concluded that "Australian banks are well positioned to continue lending, even in a downturn".

Rates, jobs and the 3 November meeting

The Board has raised the cash rate target four times in 2026, a cumulative 100 basis points. The Governor told senators the full effects of recent rate rises are yet to be felt, which means the labour market may continue to adjust in the months ahead.

The Board meets on 2–3 November, and its decision, along with a fresh Statement on Monetary Policy, will be published at 2.30 pm (AEDT) on 3 November. That decision has not been made. In September, the Board said it would remain "attentive to the data and the evolving assessment of the outlook and risks", and the Governor said: "I'm not going to give you forward guidance."

The bottom line

The rise in unemployment from 3.5 per cent to 4.6 per cent is real, and the Governor has acknowledged the most recent increase was a little more than expected. But in the RBA's assessment, the rate remains "quite low historically", the share of Australians with a job remains high, and the market is still "a little bit tight". With inflation at 4.3% headline and 3.6% underlying, that combination explains why the RBA has not treated the jobless climb as a reason, on its own, to change course. What the Board decides next week remains to be seen.