Australian jobs market: Strong start to 2026 with unemployment rate steady at 4.1 per cent

The Aussie jobs market has posted a solid start to 2026, with the unemployment rate steady at 4.1 per cent in January — a number that will not ease the Reserve Bank’s concerns about inflation.

That was unchanged from December, according to data from the Australian Bureau of Statistics. Employment lifted by 18,000 through the month, a little less than analysts had expected.

Some Australians who can’t find jobs appear to be leaving the market altogether, with a modest decline in the proportion of working age Australians in the labour force, down 0.6 percentage points from the peak in January 2025 to 66.7 per cent.

The tight jobs market has been a key reason many economists expect the Reserve Bank may need to increase interest rates again this year after hiking the cash rate from 3.6 per cent to 3.85 per cent two weeks ago.

AMP’s Diana Mousina said employment was “really in a sweet spot right now”, though the jobless rate would likely modestly lift this year.

“Overall, the labour market remains in good shape and we have been surprised at how resilient it has remained in recent years,” she said.

“Today’s data also confirms the RBA’s view that the labour market is still tight.”

The figures will keep the RBA “on alert” and increased the chances of a May hike, BDO chief economist Anders Magnusson said.

“This departs from the RBA’s forecast and increases the risk that interest rate rises will be brought forward,” he said.

“This will be a concern for the RBA. A labour market this tight raises the risk that wage and price pressures become more persistent, particularly if households and businesses expect higher inflation to continue.”

At the central bank’s board meeting earlier this month, RBA staff believed “the labour market was a little tighter than consistent with full employment.”

That means jobs are running hot — but too strong to be sustainable long term and starting to push consumer prices higher.

“In the labour market, there had been ongoing strength in unit labour costs (wages), the unemployment rate had been lower than expected and measures of underemployment were historically low,” the meeting’s minutes said.

RBA assistant governor Sarah Hunter last week also said the tight jobs market was “consistent with there still being some inflationary pressure.”

Markets had overnight tipped an 80 per cent chance of an interest rate hike by June after data on Wednesday showed national wages growth of 3.4 per cent for the year.

That’s less than the headline inflation rate, meaning workers went backwards.

But it’s also higher than the Reserve Bank’s inflation target — meaning productivity would need to improve or risk further upwards pressure on prices.