Latest jobs figures move rate hike further towards reality

Yasmine Raso

Senior Journalist

27 January 2026

The much-awaited labour force data drop from the Australian Bureau of Statistics (ABS) has delivered the market a “significant surprise” on the upside, pushing expectations of a February rate hike away from possibility and further towards reality.

New commentary from HSBC has confirmed that this dataset – one of two the Reserve Bank of Australia (RBA) is waiting for in anticipation of its first monetary policy decision of the year in less than two weeks – now points to a higher likelihood than expected of a rate hike, given employment rose by 65,200 jobs in December and the unemployment rate fell to 4.1 per cent.

While the market expected unemployment to continue steady at 4.3 per cent and the underemployment rate also dropped to 5.7 per cent, HSBC’s Chief Economist, Paul Bloxham, said these figures suggest the jobs market is tightening rather than loosening.

“These signs of a tightening jobs market come as inflation has picked up to above the RBA’s 2-3% target band. The Q3 inflation print had surprised markedly to the upside, at 1.0% q-o-q on the trimmed mean, and the October and November monthly readings showed the trimmed mean rising above the top edge of the target band,” he said.

“Next week the Q4 CPI figures are published, on 28 January, and although we expect the trimmed mean to ease back a bit q-o-q, we see it printing at 0.8% q-o-q, which would still be above the RBA’s target band on an annualised basis (and 3.2% y-o-y).”

Further dependent on the CPI figures to come this week, Bloxham indicated that the RBA may be forced to deliver a rate hike as it will not be able to rely on a loosening jobs market to cool down inflation over the next several months.

“Although we had thought the RBA may have been able to look through the higher core inflation readings and still forecast core inflation heading back to its target, this view relied on the central bank being able to argue that the loosening jobs market would deliver disinflation over time,” he said.

“Today’s jobs figures mean that it is very hard to argue that the jobs market is loosening. In particular, the unemployment rate is falling and is well below the RBA’s own estimates of ‘full employment’.”

Bloxham also confirmed HSBC’s central case for the RBA’s tightening cycle has shifted from three hikes starting in Q3 to one in February and another in Q3 to 4.1 per cent, because “as they start earlier now, we expect less tightening”.