Key Highlights

  • Unemployment rose to 4.6% in the September quarter, more than the RBA expected.
  • The RBA attributes most of the rise to higher-than-expected labour supply.
  • Employment growth held up in the September quarter, as the RBA had forecast.
  • The RBA forecasts Unemployment to rise to a bit over 5% by end-2028.

The jobless rate climbed to 4.6 per cent in the September quarter, but the Reserve Bank says the rise came mostly from more people entering the labour market rather than a collapse in hiring.

A rising unemployment rate usually gets read as a sign that businesses are shedding staff. The Reserve Bank of Australia's (RBA) November 2026 Statement on Monetary Policy tells a more nuanced story. In its chapter on economic conditions, the bank states plainly: "The unemployment rate increased to 4.6 per cent in the September quarter." Yet in the same breath it notes that "employment growth held up in the September quarter as expected", and that the rise in unemployment largely reflected higher-than-expected labour supply. That distinction shapes how the number fits into the RBA's thinking, and why the Monetary Policy Board still lifted the cash rate target by 25 basis points to 4.85 per cent on 3 November.

Two sides of the same ledger

The unemployment rate is a ratio. On top is the number of people who want work, are looking for it and do not have it. Underneath is the labour force, meaning everyone who is either employed or actively searching. Because both parts can move, the rate can rise for quite different reasons.

In one scenario, firms cut jobs, people lose work and the unemployed count swells. In another, employers keep hiring at a steady clip, but even more people start looking for jobs at the same time, so the share without work ticks up while employment still grows.

The RBA's assessment points mostly to the second scenario for the September quarter. Employment growth did what the bank had expected. What surprised was the Supply side: more people than anticipated were available for work. The arithmetic result was a higher unemployment rate, but the underlying picture is not one of widespread Job destruction.

The Overview of the Statement puts the surprise in context: "The unemployment rate rose by more than expected to average 4.6 per cent in the September quarter."

Why labour supply is relevant to inflation

For a Central Bank focused on inflation, the reasons behind a change in unemployment are as important as the change itself. When unemployment rises because Demand for workers is weakening, it can signal that pressure on wages and prices is easing. When it rises because labour supply has grown faster than expected, the implications are less clear-cut.

A larger pool of available workers can, in principle, give employers more Options and take some heat out of the labour market. At the same time, steady employment growth suggests demand for labour has not faded.

This helps explain why the RBA did not treat the higher jobless rate as a reason to hold off. Inflation remains the central concern. The Overview states: "Headline inflation was 3.9 per cent over the year to the September quarter and trimmed mean inflation was 3.7 per cent." The monthly CPI indicator, a separate headline measure, showed annual inflation of 4.3 per cent in the September month. Both headline measures and the underlying trimmed mean sit well above the RBA's target band.

Governor Michele Bullock was direct at her 3 November media conference: "Returning inflation to target is our priority, and we will do what is necessary to achieve that."

The forecast path from here

While the September quarter rise came largely from supply, the RBA's forecasts show unemployment continuing to drift higher over the next two years. The November Statement projects the quarterly average unemployment rate at:

  • 4.7 per cent in December 2026 (up from 4.5 per cent in the August forecast)
  • 4.8 per cent in June 2027 (previously 4.6 per cent)
  • 4.9 per cent in December 2027 (previously 4.7 per cent)
  • 5.0 per cent in June 2028 (previously 4.8 per cent)
  • 5.1 per cent in December 2028 (previously 4.8 per cent)

The Overview summarises it: "The unemployment rate is forecast to rise to a bit over 5 per cent by end-2028."

Every point on that path is higher than in August. Part of that reflects the higher starting point delivered by the September quarter outcome. Part reflects a softer growth outlook. GDP growth is forecast at 1.6 per cent over the year to December 2026, easing to 1.3 per cent by December 2027 and June 2028, before a modest lift to 1.5 per cent by December 2028. The Economic Conditions chapter notes that GDP growth "has slowed this year to a little below its potential growth rate".

Reading the numbers carefully

The September quarter is a lesson in reading beyond a single figure. A higher unemployment rate driven by labour supply does not carry the same meaning as one driven by layoffs. It does not necessarily mean workers are being let go in large numbers.

What can be said is that the bank expected employment to hold up, and it did. The forecast deterioration over the coming years is gradual rather than abrupt, and it sits alongside the RBA's view that inflation needs to come down. The bank's statement says "Inflation is now forecast to remain elevated through much of 2027", and the Overview adds that "Headline and trimmed mean inflation are now expected to remain above 3 per cent until end-2027".

There is a tension there that the Board has openly acknowledged. Governor Bullock said: "Some pain now will prevent even worse pain down the track." A softer labour market is part of the adjustment the RBA expects as tighter policy works through the economy.

The vote on 3 November was not unanimous. Six members voted to increase the cash rate and three voted to leave it unchanged at 4.60 per cent, a reminder that the Board weighs these cross-currents differently.

The bottom line

Unemployment rose to 4.6 per cent in the September quarter, more than the RBA expected, but the bank attributes most of that rise to higher-than-expected labour supply, with employment growth holding up as forecast. That makes the increase less alarming than a headline jump might suggest, though the RBA still expects the jobless rate to climb gradually to a bit over 5 per cent by end-2028 as growth slows. The next opportunity to see how the Board weighs these labour market signals comes with the minutes of the November meeting on 17 November and the next cash rate decision at 2.30 pm on 8 December 2026.