Key Highlights

  • A high share of Australians in work is a reason most households have absorbed higher interest rates without widespread stress.
  • Around 2 per cent of variable-rate owner-occupiers have a cash-flow shortfall, and the median borrower can cover over a year of payments from buffers.
  • The RBA sees that resilience as a sign demand remains high relative to the economy's capacity, with headline inflation at 4.3 per cent.

A high share of Australians in jobs is helping households absorb higher interest rates, but the Reserve Bank sees that same resilience as a reason to stay wary on inflation.

Among the many figures in Governor Michele Bullock's Opening Statement to the Senate Economics Legislation Committee on 28 October 2026, one observation stood out for what it says about everyday life: the share of the population with a job remains high.

It came straight after an acknowledgement that the unemployment rate had recently risen "a little more than we had expected". The Governor nonetheless told senators the labour market appears slightly tighter than previously judged. The two ideas sit side by side. Unemployment has moved up, yet employment across the population remains widespread.

For the Reserve Bank of Australia (RBA), that employment signal cuts two ways. It is the main reason households have coped with four rate rises this year. It is also one reason the central bank remains cautious about declaring victory over inflation ahead of the Monetary Policy Board's 3 November decision, which has not yet been made.

Two measures, two stories

The unemployment rate and the share of the population in work answer slightly different questions. The unemployment rate measures the proportion of people in the labour force who want a job but do not have one. The employment share looks at how many people across the population actually have jobs.

The two can move differently. If more people start looking for work, the unemployment rate can rise even while a large share of the population stays employed. That is why the Governor's emphasis on the employment share is significant: it suggests the softening in the labour market has so far been gradual rather than broad-based.

At her media conference on 29 September 2026, Governor Bullock described the shift in unemployment: "the unemployment rate has risen from 3.5 per cent over the past couple of years to 4.6 per cent". Her assessment then was that "the unemployment rate is still quite low historically," and "we still think the labour market is a little bit tight."

Jobs as a shock absorber for households

A steady income is the single most important protection a household has against higher interest rates. The RBA's October 2026 Financial Stability Review, released on 1 October, suggests that protection is holding up.

Key findings from the review's assessment of households include:

  • Around 2 per cent of variable-rate owner-occupiers have a cash-flow shortfall, projected to stay a little under 2 per cent and well below the 2024 peak.
  • The median borrower can cover over a year of scheduled payments from buffers.
  • Less than 1 per cent of borrowers are estimated to be in negative equity.
  • Arrears of 90 days or more have increased a little over the year to date, to around pre-pandemic levels, and the share in formal hardship has increased but remains low.

The review concluded: "Most Australian households with mortgages remain well placed to manage more difficult conditions". Assistant Governor (Economic) Sarah Hunter echoed that in her 60 Minutes interview, broadcast on 25 October 2026, saying most borrowers entered this period with buffers such as offset savings and that the RBA is not seeing systemic mortgage stress. "We're not seeing signs of lots of people having to sell their home because that's putting them into financial stress," she said.

The common thread is employment. Borrowers with jobs can keep meeting repayments, even if budgets are stretched. The review's own severe stress scenario, in which unemployment rises to 6.3%, shows what changes when that support eases: the share of mortgagors in cash-flow shortfall rises to about 5 per cent. That scenario is a hypothetical test, not a forecast.

Why resilience keeps the RBA wary

The flip side of resilient employment is resilient spending. When most people are working, demand for goods and services tends to hold up, and that can keep pressure on prices.

The Governor told senators household spending growth is moderating only gradually and that business investment has picked up, mainly in data centres and renewable energy. She also said low productivity growth means the economy cannot grow rapidly without adding to inflation pressure, and that "we still see inflation arising from domestic capacity pressures."

The inflation data underline the concern. The Australian Bureau of Statistics (ABS) reported on 28 October that headline CPI rose 4.3% over the 12 months to September 2026, while the trimmed mean, the RBA's underlying measure, rose to 3.6%. Services inflation, which is often linked to domestic conditions, was 4.1% annual. All are above the 2–3 per cent target range.

In other words, the same high level of employment that cushions households also helps explain why inflation has been slow to come down. The Governor said at the September media conference: "Higher interest rates are needed to ensure inflation returns to target."

Not everyone is insulated

The headline employment picture does not mean every part of the economy is comfortable. The Financial Stability Review found business insolvencies are around their longer-run average but elevated in hospitality, construction and transport. And the Governor acknowledged on 29 September: "But at an individual level, yes, there are households that are hurting."

The Governor also told senators the full effects of recent rate rises are yet to be felt. The cash rate target has risen 100 basis points this year to 4.60 per cent, and because monetary policy works with a lag, its effect on hiring may continue to build.

Officials have said they are not aiming for a slump. Assistant Governor Hunter said: "We're not trying to achieve a sharp stop or a really big downturn or anything like that." The Board's decision and a new Statement on Monetary Policy are due at 2.30 pm (AEDT) on 3 November. The Board has said only that it will be "attentive to the data and the evolving assessment of the outlook and risks".

The bottom line

A high share of Australians in work is the reason most households have so far absorbed higher interest rates without widespread financial stress. But for the RBA, that resilience is also a sign that demand remains high relative to the economy's capacity, at a time when headline inflation is 4.3% and underlying inflation is 3.6%. How the Board weighs those signals will become clear when it announces its decision on 3 November.