A key concern for the RBA as we roll into their first meeting of 2026 will be getting a solid gauge on the strength of Australia's labor market.
With inflation currently outside the RBA's target range, a key factor for whether the RBA will move to increase rates is the second limb of their mandate.
So how is the labour market looking at the moment:
💫 Employment Growth remain strong.
The economy had added 165,000 jobs over the last year. This represents growth of 41,250 per quarter, well ahead of the long run average of 9,800 per quarter.
💫 Unemployment fell to 4.1% last quarter, well below the long-term average of 6.5%
💫 While vacancies have declined recently, (they are down 31% from their mid-2022 peak), they remain 40% above 2019 levels and 32% above the long-term average. Demand still outstrips supply for labour.
💫 Wage Growth remain right in-line with the long-term average of 3.2% in nominal terms, and when adjusted for substantial falls in productivity, is well above the long-term average in output terms. Employees are comparatively expensive and getting more so.
💫 Trouble finding suitable staff remains one of the top challenges sighted by business leaders in early 2026.
Taken together, we have a picture of significant labour shortage in the economy that isn’t likely to improve in 2026. I think the RBA's recent call that they labour market is 'a little tight' is an understatement. This gives the RBA plenty of scope to increase rates to deal with excess inflation, while still meeting their dual mandate.
I still think the RBA will be cautious. Reversing course and returning to increases this soon would be a significant embarrassment that I think the board would like to avoid if at all possible.