Unemployment has risen by more than a percentage point in a couple of years, yet Governor Michele Bullock says the jobs market remains historically strong, a tension running through this week's rate rise.

Two numbers framed much of what Governor Michele Bullock said about jobs after the Reserve Bank lifted the cash rate target to 4.60% on 29 September: 3.5 and 4.6. At her media conference, she said "the unemployment rate has risen from 3.5 per cent over the past couple of years to 4.6 per cent".

On its face, more than a percentage point has been added to the jobless rate, and for households watching both their mortgage repayments and their job security, a rising unemployment rate at the same time as a rising cash rate can look like a contradiction. Why would a central bank tighten policy when more people are out of work?

Bullock's answer was to put the number in context. Unemployment, she said, is "still quite low historically", and the economy has seen "over a million jobs created". In other words, the RBA reads the rise as a move away from an unusually tight position rather than a slide into weakness.

Where 3.5% came from, and why it mattered

If 4.6% is "still quite low historically", as the Governor put it, then a rate of 3.5% sat at the extreme end of that history. When unemployment is that low, employers compete harder for staff, workers have more options, and businesses can find it difficult to expand output without bidding up wages or lifting prices. That is the textbook reason central banks watch labour market tightness closely: a very tight market can add to inflation pressure.

The RBA's August Statement on Monetary Policy, published on 11 August when the cash rate was still 4.35%, assessed the labour market as "still ... a little tighter than full employment". Full employment is, broadly, the level of employment consistent with stable inflation, the point at which the labour market is neither adding to nor subtracting from price pressures.

From the RBA's perspective, then, the drift from 3.5% to 4.6% has been part of the labour market moving back toward balance. The Monetary Policy Board's statement on 29 September said labour market conditions have "eased broadly as expected in recent months", and that leading indicators are "broadly stable".

Easing as expected is not the same as loose

The words "as expected" carry weight. The RBA had anticipated some loosening in the jobs market as higher interest rates slowed demand. The fact that it has happened roughly on schedule suggests the labour market is not, on its own, the source of the inflation surprise that prompted the hike.

Instead, the Board's statement pointed elsewhere. It said "recent inflation outcomes in Australia were stronger than expected at the previous meeting", that "Firms are experiencing cost pressures", that global energy prices were "now much higher" than at the time of the August forecasts, and that "AI-related demand is driving rapid growth in global prices for technology-related goods".

Put simply, the jobs market is cooling in the way the RBA wanted, but other forces are keeping inflation too high. Headline inflation was 4.0% over the year to August on the monthly CPI indicator, and Bullock said "the underlying inflation rate's been about 3.5 per cent for the past six months". Both measures sit above the 2–3% target band, whose midpoint is 2.5%.

Readers following the RBA closely may have noticed another unemployment figure in a speech delivered a week before the decision. Monetary Policy Board member Iain Ross AO, speaking at the University of Melbourne on 22 September, cited an unemployment rate of 4.5% in July 2026, up from 4.2% a year earlier.

The two are not in conflict. Ross referred specifically to July, while the Governor described the change "over the past couple of years" at a media conference a week later. What matters more for policy is the direction and pace of change, and on that both RBA voices describe a gradual rise rather than a sudden break.

What sits beneath the headline rate

The unemployment rate is only one lens on the labour market. Asked about the nature of employment, Bullock acknowledged: "yes, there is some evidence that there are more multiple job holders than there used to be". The Governor also observed that "Pay packets don't go as far as they used to".

On wages, she was direct: "There is no wage price spiral going on in Australia." Ross's speech reached a similar conclusion, finding little evidence of that risk under current institutional arrangements.

That matters for interpreting the jobs data. A tight labour market becomes an inflation problem chiefly when it pushes wage growth to levels that businesses pass on in higher prices, which then feed back into further wage claims. The RBA's assessment is that this loop is not operating now, which helps explain why the Board's attention is on business costs, energy and capacity rather than on the labour market as the main driver.

Could unemployment keep rising?

Higher interest rates work partly by slowing spending, which in turn tends to soften hiring. A further gradual rise in the jobless rate would be a normal consequence of tighter policy rather than, by itself, a sign that something has gone wrong.

Asked about the risk of recession, Bullock said: "That is not our central base case at this moment." The statement also noted "heightened uncertainties", with the Middle East conflict still "unresolved" and scenarios in which inflation could be higher and activity lower than forecast. That combination would present the Board with a harder trade-off between its inflation and employment objectives.

For now, the forward guidance leans toward inflation as the priority. The Board said it "will continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if needed."

The bottom line

A jobless rate of 4.6% is higher than it was, and the Governor did not suggest otherwise. But the RBA's framing is that the labour market started from an unusually tight position, has eased broadly as expected, and remains strong by historical standards after more than a million jobs were created. That is why a rising unemployment rate has not stopped the Board from lifting rates.

For households and businesses, the questions worth watching are whether unemployment keeps drifting up gradually or begins to accelerate, whether leading indicators stay stable, and whether inflation starts to respond. The next CPI release is due on 28 October, and the Board's next decision is scheduled for 2:30 pm AEDT on Tuesday 3 November 2026.