Unemployment eases to 4.4 per cent in May from four-year high of 4.5 per cent in April

Unemployment has eased from a four-year high, increasing the chance of an interest rate hike in August.

The jobless rate fell back to 4.4 per cent in May after reaching 4.5 per cent in April, which at the time was the worst unemployment figure since late 2021 when Sydney and Melbourne were in COVID lockdown.

The Reserve Bank of Australia this month left interest rates on hold at 4.35 per cent as a result of the previous unemployment spike but an easing in May means an August 11 hike is still a possibility, that would take the RBA cash rate to a 15-year high of 4.6 per cent.

“Today’s figure actually adds to the case for another rate rise and sooner rather than later as it’s this strong labour market that’s continuing to underpin aggregate demand and fuel core inflation,” KPMG chief economist Brendan Rynne said.

Last month saw 40,300 jobs created as 18,300 fewer people were unemployed, which Treasurer Jim Chalmers hailed as good news during the Middle East war.

“This is a very welcome reminder of the strength of our labour market and the resilience of our economy in the face of all this global uncertainty,” he said.

But rate hikes in February, March and May are causing unemployment to rise in parts of the country that until recently had some of the lowest jobless levels, complicating the RBA’s task of maintaining full employment as it tries to get inflation back within target.

“Whilst the headline figures in today’s labour force data were solid, the underlying data continues to confirm further softening in labour market conditions,” Ebury economist Anthony Malouf told The Nightly.

“Indeed, a cooling labour market, coinciding with slowing economic growth ahead, should limit the extent of any further broadening in price pressures in our view.

“We continue expect the RBA to keep rates on hold for the remainder of this year and into next year, before cutting the cash rate in mid-2027.”

Mining-rich Western Australia saw its unemployment rate soar to a six-month high of 4.6 per cent in May, up from 4.2 per cent in April, putting it above the national average.

Tasmania had Australia’s highest jobless rate of 5.3 per cent, up from an already high 5 per cent in April to reach a new four-year high, less than a year after having Australia’s lowest unemployment rate of 3.3 per cent in August 2025.

Victoria, a poor performing economy since COVID, saw its jobless rate soar to a four-year high of 4.9 per cent, up from 4.8 per cent.

But Queensland once again had Australia’s lowest jobless rate of 3.7 per cent after it plunged from 4.3 per cent.

South Australia’s jobless rate remained low at 4.2 per cent while in NSW, it eased to 4.3 per cent from 4.4 per cent.

Youth unemployment remained high at 10.4 per cent even after easing from 11 per cent.

The latest labour force numbers from the Australian Bureau of Statistics were released on Thursday, a day after it revealed underlying inflation in May rose to 3.6 per cent, up from 3.4 per cent and marking the biggest annual jump in two years.

While headline inflation eased to 4 per cent, from 4.2 per cent, it marked the 10th straight month above the Reserve Bank’s 2-3 per cent target.