Governor Michele Bullock used her 29 September media conference to explain why a jobless rate that has climbed from 3.5 to 4.6 per cent is not, in her words, a story of workers being shed.

A rising unemployment rate is usually read as a warning light. When it creeps up in the same year a central bank lifts interest rates four times, it is easy to assume the two are linked in the bluntest possible way: higher rates, fewer jobs.

Governor Michele Bullock offered a more careful reading when she faced reporters after the Monetary Policy Board raised the cash rate target by 25 basis points to 4.60 per cent on 29 September. She acknowledged that "the unemployment rate has risen from 3.5 per cent over the past couple of years to 4.6 per cent". In the same breath, she pointed out that "there's been over a million jobs created." Her conclusion was short: "it doesn't mean job losses."

That distinction matters for anyone trying to make sense of the labour market data, and for understanding why the Board has kept tightening even as unemployment has edged higher.

What the numbers actually show

The 4.6 per cent figure Bullock cited is the latest step in a gradual drift upwards. When the RBA published its August Statement on Monetary Policy (SMP), unemployment had risen to 4.4 per cent. By the time the Governor appeared before the House of Representatives Standing Committee on Economics in Canberra on 18 September, the then-latest reading was 4.5 per cent. Eleven days later, she was quoting 4.6 per cent.

Even at those levels, Bullock has framed the labour market as strong rather than weak. Her opening statement to the committee said: "The unemployment rate – at 4.5 per cent – is low by historical standards." She added that "the share of the population with a job is close to a record high."

The Board's 29 September statement struck a similar note, describing the labour market as having eased broadly as expected. In other words, the drift higher in unemployment was something the RBA had anticipated, not a surprise that forced a rethink.

How unemployment can rise while jobs are created

The apparent contradiction in Bullock's remarks — more jobs, yet a higher unemployment rate — comes down to how the rate is measured. The unemployment rate is the share of people in the labour force who want work and are looking for it but do not have a job. It is a ratio, not a head count of redundancies.

That means the rate can rise even while total employment is growing, if the number of people joining the labour force outpaces the number of new positions. It can also rise if fewer vacancies open up for people already looking, without anyone currently employed losing their position. A rising rate signals that conditions are less tight than they were; on its own, it does not reveal whether people are being laid off.

The RBA's own August forecasts illustrate the point. They had employment growing by 1.1 per cent over the year to June 2026 and by 1.4 per cent over the year to December 2026, even as the unemployment rate was projected to rise from 4.4 per cent to 4.5 per cent over the same period, and on to 4.8 per cent by mid-2028. Those projections were made in August with a cash rate assumption of around 4.3 to 4.5 per cent — before the September hike — so they are a guide to the RBA's thinking at the time rather than a current forecast.

Why the Board can live with some easing

The reason the Board has not been deterred by higher unemployment lies in the inflation picture. Headline inflation, as measured by the monthly CPI indicator, was 4.0 per cent over the year to August. The quarterly headline figure was 3.9 per cent over the year to the June quarter. Underlying inflation, measured by the trimmed mean, was 3.6 per cent in the June quarter, and Bullock described it on 29 September as "about 3.5 per cent". All of those sit above the 2–3 per cent target range and its 2.5 per cent midpoint.

Bullock was explicit about the source of the problem: "Inflation is too high and has been driven by domestic capacity pressures." When demand for workers and goods runs ahead of what the economy can comfortably supply, prices tend to rise faster. A labour market that loosens a little is part of how those pressures ease.

The August minutes noted that spare capacity was expected to emerge from late 2027. Productivity is a complicating factor. Bullock told the parliamentary committee that "Continued weak productivity growth means that the economy cannot grow strongly without putting pressure on inflation." With output per worker barely growing, the economy has less room to run hot without stoking prices.

Not stagflation, not a recession base case

Bullock rejected the description of Australia’s economy as experiencing stagflation: "I wouldn't call inflation of 3.5 per cent and an unemployment rate of 4.6 per cent stagflation."

She was similarly measured when asked about recession risk, saying: "That is not our central base case at this moment." The Board's statement noted that output growth has slowed, but was stronger than expected in the June quarter, and that consumer spending is easing gradually.

There are also signs the tightening is still working its way through. Bullock said: "We raised interest rates three times earlier in the year." She added: "A lot of that effect is still to flow through." On the timing, she said "it can take 12, perhaps even 18 months" for rate changes to work fully through the economy. That lag means labour market effects from this year's increases may not yet be fully visible.

For the Board, the trade-off is stated plainly in its own words: it is focused on preventing high inflation from becoming embedded, and judges that "a further tightening of financial conditions" is warranted to return inflation to target within a reasonable period.

The bottom line

Bullock's message on jobs is that a higher unemployment rate, so far, reflects a labour market cooling from tighter conditions rather than widespread job cuts — with over a million jobs created and employment close to a record share of the population. The Board views that gradual easing as consistent with its plan to bring inflation back to target.

What happens next is open. Bullock was clear that "I'm not going to give you forward guidance." The minutes of the September meeting are due on 13 October, the next CPI release is on 28 October, and the Board's next decision will be announced at 2.30 pm on 3 November. The Board has said it will increase the cash rate further if needed and remain attentive to the data — and the labour market figures will be part of that data.