Key Highlights

  • Unemployment has risen from 3.5 per cent to 4.6 per cent over the past couple of years, recently a little more than the RBA expected.
  • The Governor said the labour market appears slightly tighter than previously judged, and the share of the population with a job remains high.
  • Low productivity growth means the economy cannot grow rapidly without adding to inflation pressure.

The unemployment rate has risen faster than the Reserve Bank anticipated, yet Governor Michele Bullock told senators the labour market appears slightly tighter than previously judged.

At first glance it reads like a contradiction. In her Opening Statement to the Senate Economics Legislation Committee on 28 October 2026, delivered by videoconference to the Supplementary Budget Estimates hearing, Governor Michele Bullock acknowledged that the jobless rate had moved up more than the central bank had forecast. In the same statement, she said the labour market appears slightly tighter than the Reserve Bank of Australia (RBA) had previously judged.

How can unemployment rise by more than expected while the market is described as tighter, not looser? The answer lies in how the RBA thinks about "tightness". It is not simply a reading of one headline number. It is a judgement about how much spare capacity exists in the economy relative to what can be sustained without adding to inflation.

This distinction matters right now. The Monetary Policy Board meets on 2–3 November, with its decision due at 2.30 pm (AEDT) on 3 November, and the outcome has not been decided. The labour market is one of the key inputs the Board weighs.

What the Governor actually said

The Governor's phrasing to senators was careful. "Despite the unemployment rate recently rising a little more than we had expected," she noted, the labour market appears slightly tighter than previously judged. She added that the share of the population with a job remains high.

Those remarks build on what she said at her media conference on 29 September 2026, after the Board raised the cash rate target by 25 basis points to 4.60 per cent. On that occasion Governor Bullock said "the unemployment rate has risen from 3.5 per cent over the past couple of years to 4.6 per cent". She also said "the unemployment rate is still quite low historically," and "we still think the labour market is a little bit tight."

The Board's own decision statement that day, Media Release 2026-27, put it this way: "Labour market conditions have eased broadly as expected in recent months". So the picture across September and October is one of gradual easing, a recent surprise on the unemployment side, and an assessment that underlying tightness has not disappeared.

Why a higher jobless rate doesn't automatically mean slack

Economists generally think of the labour market as "tight" when the demand for workers is high relative to the supply of workers the economy can sustainably provide. An unemployment rate is one way of observing this, but it is not the whole story.

Several threads in the RBA's recent communication help explain why the central bank's view has not flipped:

  • Employment remains widespread. The Governor highlighted that the share of the population with a job remains high. A rising unemployment rate can sit alongside a large share of people in work, for example when more people are looking for jobs.
  • Capacity, not just jobs. The Governor told senators "we still see inflation arising from domestic capacity pressures." If demand for goods, services and labour is still running ahead of what the economy can supply, the market can be tight even as unemployment drifts higher.
  • Productivity is low. The Governor also said low productivity growth means the economy cannot grow rapidly without adding to inflation pressure. When each worker produces less additional output than hoped, the economy's sustainable "speed limit" is lower, and a given level of employment represents more strain on capacity.

Assistant Governor (Economic) Sarah Hunter framed the same idea in her 60 Minutes interview, broadcast on 25 October 2026. She described two challenges facing the RBA: an overseas oil shock, and excess domestic demand relative to sustainable supply. That second challenge is closely linked to the question of labour market tightness.

How the inflation data fits in

The labour market assessment does not exist in isolation. On the same day the Governor appeared before senators, the Australian Bureau of Statistics (ABS) released its Consumer Price Index for September 2026. Headline CPI rose 4.3% over the 12 months to September, up from 4.0% in the 12 months to August. The trimmed mean, the RBA's preferred measure of underlying inflation, was 3.6%, up from a revised 3.5% in August.

Of particular relevance to the labour market debate, the ABS reported services inflation of 4.1% annual and goods inflation of 4.6%. Services prices tend to be more closely tied to domestic conditions, including labour costs, so persistent services inflation is consistent with the RBA's message that domestic capacity pressures remain.

All of these readings sit above the RBA's target range of 2–3 per cent, with the midpoint of 2.5 per cent used as the reference point. The Governor told senators the aim is to return inflation to that range, with some flexibility on timing to balance the goal of full employment.

The balancing act ahead of 3 November

The RBA has raised the cash rate target four times in 2026, a cumulative increase of 100 basis points. In its 29 September statement, the Board said it "will be attentive to the data and the evolving assessment of the outlook and risks", including "increasing the cash rate target further if needed".

A labour market that is easing faster than expected could, in principle, argue for caution. A labour market that remains tight relative to the economy's limited capacity could argue the opposite. The Board's task is to weigh both, alongside new forecasts in the Statement on Monetary Policy, which will be released at the same time as the decision on 3 November.

Officials have been explicit that they are not aiming for a slump. Assistant Governor Hunter said on 60 Minutes: "We're not trying to achieve a sharp stop or a really big downturn or anything like that." Asked about recession, she said: "We don't see any signs of that yet in any of the data that we track." She declined to signal the next decision, and the Governor said in September: "I'm not going to give you forward guidance."

The bottom line

The apparent paradox resolves once "tight" is understood as a statement about capacity rather than a single statistic. Unemployment has risen from 3.5 per cent to 4.6 per cent over the past couple of years, and recently by a little more than the RBA expected. But with a high share of Australians employed, low productivity limiting how fast the economy can grow, and inflation still driven partly by domestic capacity pressures, the central bank continues to judge the labour market as slightly tight. How that judgement shapes the 3 November decision is a matter for the Board, which has not yet met.