Key Highlights

  • The RBA forecasts Unemployment rising to a bit over 5% by end-2028.
  • Deputy Governor Andrew Hauser noted that GDP fell nearly 7% in 1931.
  • He also said unemployment reached nearly 30% during the Depression.
  • Credibility also shapes how firms and households respond to policy.

The Reserve Bank now expects the unemployment rate to reach and then pass 5 per cent during 2028, a milestone that says as much about its Inflation fight as about the labour market.

Round numbers carry weight in economic debate. When the Reserve Bank of Australia's November 2026 Statement on Monetary Policy projected that the unemployment rate would hit 5.0 per cent by June 2028 and 5.1 per cent by December 2028, it gave commentators a figure that is easy to remember and easy to dramatise.

The RBA's own wording is more restrained.

How the bank got to 5 per cent

The 5 per cent mark is the end point of a gradual climb rather than a sudden jump. The RBA's forecasts for the quarterly average unemployment rate run as follows: 4.7 per cent in December 2026, 4.8 per cent in June 2027, 4.9 per cent in December 2027, 5.0 per cent in June 2028 and 5.1 per cent in December 2028.

The August Statement had told a gentler story. Its figures for the same checkpoints were 4.5, 4.6, 4.7, 4.8 and 4.8 per cent. Under that earlier view, the unemployment rate never reached 5 per cent and levelled off in 2028. The November revision lifts every point and removes the plateau.

Part of the reason is a higher starting point. The Overview notes that "The unemployment rate rose by more than expected to average 4.6 per cent in the September quarter." The Economic Conditions chapter attributes that rise largely to higher-than-expected labour supply, while "employment growth held up in the September quarter as expected".

The other part is a weaker growth outlook. GDP growth is now forecast at 1.3 per cent over the years to December 2027 and June 2028, compared with 1.6 per cent in August, and 1.5 per cent by December 2028 rather than 1.8 per cent.

A forecast built on assumptions

Long-range forecasts are conditional. The RBA's projections rest on a set of technical assumptions finalised on 28 October 2026, and changes to any of them would alter the outlook.

Three stand out:

  • The cash rate. The forecasts assume a cash rate path based on market pricing that "increases by 35 basis points by mid-2027, before declining a little to stabilise at 4.8 per cent in 2028."
  • Oil prices. The Outlook says "The assumed oil price in the December quarter is 35 per cent higher than assumed in August", and that oil is "assumed to be 11 per cent higher by end-2028 than assumed in August."
  • The exchange rate. The trade-weighted index is assumed at 65.3 from 2026/27 through 2028. As at 4.00 pm on 11 November, the TWI was 63.8, below the 2026 average assumption of 65.2.

Because the December 2028 point sits more than two years away, it is the most exposed to these assumptions shifting. A reading of 5.1 per cent is best understood as the RBA's central estimate under current conditions, not a fixed destination.

Why the bank tolerates a higher number

The rising jobless path appears in the same document that justifies a rate rise. On 3 November, the Monetary Policy Board lifted the cash rate target by 25 basis points to 4.85 per cent, saying "the Board judged that a further tightening in financial conditions is warranted".

The reason is inflation. Headline inflation was 3.9 per cent over the year to the September quarter, and the trimmed mean, the underlying measure, was 3.7 per cent. The separate monthly CPI indicator recorded 4.3 per cent for the September month. The RBA expects headline inflation to peak at 4.5 per cent in the December 2026 quarter, and the Overview says "Headline and trimmed mean inflation are now expected to remain above 3 per cent until end-2027".

The forecast unemployment rate crosses 5 per cent around the same time as both inflation measures are projected to return to 2.5 per cent, by June 2028. That timing illustrates the trade-off. A softer labour market is one channel through which tighter policy restrains price pressures.

Governor Michele Bullock acknowledged the cost: "Some pain now will prevent even worse pain down the track." She added that "It is critical that we stop expectations for high inflation from becoming embedded in price-setting decisions".

Putting 5 per cent in perspective

Deputy Governor Andrew Hauser offered useful historical context in his Sir Leslie Melville Lecture at the Australian National University on 5 November. Recounting the Depression era, he noted that Australian GDP fell nearly 7 per cent in 1931 and unemployment reached nearly 30 per cent in 1932.

Hauser also observed that the misery index, which adds the inflation rate and the unemployment rate together, is only a little above its 15-year pre-COVID average. That measure combines both sides of the trade-off the RBA is managing, and suggests that the overall position, while uncomfortable, is not extreme by recent historical standards.

None of this lessens the effect on people who lose work. But a jobless rate of a bit over 5 per cent, reached gradually over two years, is a long way from a collapse.

There is also a point about trust. Hauser argued that credibility matters to how policy works: "So trust isn't just a source of legitimacy – it's integral to how monetary policy actually works." In a Macquarie University Business survey he cited, firms expecting a faster return to target planned to pass on less of their Middle East conflict-related costs.

The bottom line

The 5 per cent threshold in the RBA's November forecasts marks the end of a slow upward drift in unemployment, from 4.6 per cent in the September quarter to 5.0 per cent by June 2028 and 5.1 per cent by December 2028. It reflects a higher starting point, slower growth and restrictive policy, and it rests on assumptions about the cash rate, oil and the currency that may change. The bank presents the softening as part of returning inflation to target. The Board's next decision is due at 2.30 pm on 8 December 2026.