Unemployment in March remains steady at 4.3 per cent despite first full month of Iran war adding to inflation

Unemployment in March remained steady at 4.3 per cent during the first full month of the Iran war, increasing the chance of an interest rate hike next month.

Even with soaring fuel prices, the number of people without work in fact fell by 3700 to 656,300, new Australian Bureau of Statistics data released on Thursday showed.

Full-time jobs increased by 52,500, which more than offset the 34,600 drop in part-time jobs, despite historically weak consumer and business confidence readings.

LNG-rich Queensland saw its jobless rate plunge to an ultra-low 3.7 per cent, with the Middle East conflict producing a work boom unseen since the COVID recovery in 2020.

Economists, however, are warning the national jobless rate was likely to rise in 2026 as the Reserve Bank hiked rates to tackle soaring inflation.

With price pressures only expected to worsen, the RBA is now more likely to increase rates on May 5 by another 25 basis points to 4.35 per cent.

A continuation of low unemployment and inflation at 3.7 per cent in February, before the US strikes on Iran, means the RBA would be more inclined to act aggressively to bring inflation back towards the mid-point of its 2-3 per cent target.

“Despite the dual mandate, it seems the RBA’s clear focus is now geared towards ensuring inflation returns to the mid-point of the target band, and if it comes at the expense of job losses then it would seem that is the price the economy needs to pay to ensure inflation expectations remain anchored,” KPMG chief economist Brendan Rynne said.

While unemployment is still low, EY chief economist Cherelle Murphy said higher interest rate rises were likely to push up the jobless rate in 2026.

“Labour market conditions are expected to ease over the course of this year as the effects of interest rate increases take effect,” she said.

“More worryingly, the significant falls in consumer and business confidence in April point to a risk of a downturn in domestic demand and therefore a more severe downturn in labour market conditions.”

Treasurer Jim Chalmers said the low jobless figure was a good sign, without mentioning already-high inflation.

“All of the global economic uncertainty we are seeing in the world right now is informing our thinking ahead of next month’s Budget, but these figures show we have strong economic foundations to confront the challenges ahead,” he said from Washington on Thursday.

Higher crude oil prices now at $US91 a barrel, Iran’s blockade of the Strait of Hormuz and the destruction of Qatar’s LNG facilities mean more demand for Australian liquefied natural gas and coal.

The resources-rich states had the strongest labour markets with Queensland, a major LNG and coal exporter, having a 10-month low jobless rate of just 3.7 per cent, Australia’s lowest.

This followed a plunge from 4.4 per cent in February, marking the biggest monthly drop in the Sunshine State’s jobless level since the COVID recovery in 2020.

The Northern Territory, which exports LNG to Japan, had a participation rate of 72.7 per cent, well above the national average of 66.8 per cent but a slightly higher than average jobless rate of 4.4 per cent.

The states with the weakest housing markets had the highest unemployment with Victoria’s 4.8 per cent level the nation’s worst, ahead of only Tasmania on 4.6 per cent.

Western Australia, an iron ore rich state more susceptible to the effects of a global economic slowdown, had a below-average jobless rate of 4.2 per cent, while South Australia was even lower at 4 per cent.

NSW was in line with the national average at 4.3 per cent, slightly above the Australian Capital Territory on 4.2 per cent.

Australia’s unemployment rate is low by international standards which Deutsche Bank said increased the risk of even higher inflation and therefore interest rate rises as firms passed on to customers the effects of higher wholesale prices.

“For economies where demand and inflation were already strong (Australia), oil price rises are more likely to filter through to realised and expected inflation, in contrast to economies where the macro context was weak (giving firms less pricing power, and thus more likely to dent margins, and in turn hiring and capex decisions),” it said.

“So, for the same shock, relative macro context can affect whether inflation or growth should be the greater concern for policymakers.”