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Unemployment drop to 4.1% strengthens likelihood of February RBA interest rate hike

A stronger than expected jobs rebound in December adds pressure for a February rate hike.

22 January 2026

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Key points

  • 65,200 jobs added in December, mostly full-time.
  • Unemployment fell to 4.1%, the lowest since May 2025.
  • Trend unemployment eased to 4.2%, pointing to renewed strength.

Jobs bounce back

Australia’s job market finished 2025 on a high, with employment surging by 65,200 jobs in December after a weak November, according to the Australian Bureau of Statistics (ABS). Most of the gains were in full-time roles as the participation rate edged up to 66.7%.

The unemployment rate dropped to 4.1%, its lowest level in seven months. Trend figures - which smooth out monthly swings - also showed improvement, with unemployment easing to 4.2% and more than 100,000 jobs added in the second half of the year.

“The strong job market lends additional support to our call for a February rate hike taking the cash rate to 3.85%,” CBA Economist Harry Ottley said.

 “If the labour market continues to strengthen into 2026, further hikes can't be ruled out.”

What’s next for the RBA?

The Reserve Bank of Australia is watching closely as job vacancies remain high and businesses report ongoing difficulty finding workers. 

“The labour market is already too tight for comfort for the RBA,” Ottley said. “The next big test is the December quarter Consumer Price Index, due on 28 January. If inflation stays sticky and jobs growth continues, more rate rises could follow later in the year.”

See Harry Ottley’s full analysis here.

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The information presented is an extract of a Global Economic and Markets Research (GEMR) Economic Insights report. GEMR is a business unit of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945.



This extract provides only a summary of the named report. Please use the link provided to access the full report, and view all relevant disclosures, analyst certifications and the independence statement.



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