Unemployment rises slightly, but may not be enough for February rate cut

Australia's unemployment rate rose slightly to 4.0 per cent in December, but experts say it may not be enough to justify a long-awaited interest rate cut when the Reserve Bank meets next month.

The jobless rate was up 0.1 per cent last month, according to new data from the Australian Bureau of Statistics, despite 56,000 more people joining the workforce – a stronger-than-expected performance for the final month of the year.

"With employment rising by 56,000 people and the number of unemployed increasing by 10,000 people, the unemployment rate rose to 4.0 per cent," ABS head of labour statistics Bjorn Jarvis said.

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"The number of employed people grew by 0.4 per cent in December 2024, slightly higher than the average monthly rise of 0.3 per cent during 2024. It was also higher than the average monthly population growth of 0.2 per cent over the year."

Before the jobs data came out, investors had pencilled in a 73 per cent chance of a rate cut during the RBA's first meeting of the year in February.

However, today's unemployment rate is lower than the Reserve Bank's previous forecast for December of 4.3 per cent, potentially weakening the case for a cut next month.

"The low unemployment prints in November and December are the strongest arguments for the RBA not to cut interest rates in February, given the bank has assessed these unemployment rates as inconsistent with at-target inflation across time," CreditorWatch chief economist Ivan Colhoun said.

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"This should mean the probability of a cut is not as likely as the market currently prices."

However, he said there was still a good chance of a rate cut in February, provided core inflation is under control in December quarter consumer price index figures, due to be released at the end of the month.

"A less restrictive but still restrictive setting will manage the risk than growth slows too much and will thus more likely sustain the important gains made in unemployment over recent years," Colhoun said.

The ABS's most recent monthly inflation figures, released last week, showed core inflation falling to 3.2 per cent in November, within touching distance of the Reserve Bank's target range.

RBA Governor Michele Bullock has previously pointed to low unemployment, alongside high core inflation, stopping her board from pulling the trigger on a cut.

Two of the four major banks believe the cash rate will be dropped from its current level of 4.35 per cent in February, while NAB and Westpac are both forecasting a cut in May.

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