Economics Weekly Briefing: 19 October 2026

While our weekly email delivers the top three economic insights in a quick, digestible format, this blog dives deeper and unpacks the trends, context and data behind the headlines.

If you'd like to go beyond the snapshot and understand the full story, you're in the right place.

Domestic insights

Unemployment held at 4.7% in September, a second soft month for the labour market. The rise in the unemployment rate was driven by a fall in employment, a contrast to the rise seen through the start of 2026 driven by participation. Employed persons fell a notable 39,300 persons net over the month. The participation rate dropped 0.2ppt to 66.8%. Adding to the monthly volatility of the labour force survey, the ABS also flagged possible noise from residual effects of its survey changes.

The labour market story is very different from state to state. Unemployment is clearly highest in Victoria (5.1%) and Tasmania (5.0%), where it has sat around 5% since mid-year. Queensland, South Australia and WA have all held at or below 4.5%, while NSW sits in the middle at 4.7% after September's jump. Outside of Tasmania which can partly be explained by a skills match, the difference in job ads between the states tell a similar story. In Queensland, South Australia and WA, ads remain well above pre-pandemic levels and have held steady or risen in recent months, pointing to genuine resilience in labour demand in the smaller states.

We now expect the next hike in December rather than November. November will be a live meeting, and we think the Board will actively consider raising the cash rate, however we anticipate the two consecutive increases in the unemployment rate and the miss on forecasts being equal in size to the likely miss on inflation in Q3 will drive some caution among the Board. We think it will keep the Board on the sidelines in November, waiting to see whether the softening in the labour market continues before its December meeting. We are far from out of the woods on inflation, and the upside risks around fuel prices, AI-boom and persistence in inflation all remain so the tightening bias remains and we anticipate it will see the Board raise the cash rate 25bps in December to 4.85%.

The September minutes were more hawkish than the Governor's press conference. The Board voted unanimously to lift the cash rate 25bp to 4.60%, and the case for holding was only briefly considered. On the day of the meeting, Governor Bullock leaned on the lagged effects of earlier hikes and said further rises may not be needed. The minutes, similar to the accompanying written statement post decision, lean more hawkish, focusing on the upside risks to inflation that appear to be materialising.

The inflation problem is increasingly being framed as home-grown. RBA staff put July's upside surprise down more to domestic capacity pressure than to fuel pass-through from the Middle East conflict, with unit labour costs (labour costs after accounting for productivity) still growing faster than is consistent with inflation at 2.5%, and firms' short to medium term inflation expectations drifting higher as business cost growth remains elevated.

Business conditions remained soft in September, and confidence fell sharply. NAB business survey's employment index dropped into negative territory, its weakest reading in around five years. This is the only key labour market forward looking indicator showing signs of deterioration. Where it matters most for businesses, margins remain under pressure, with purchase costs continuing to run ahead of final product prices, in line with the margin pressure being seen in the S&P PMI business surveys.

Global and Market insights

Markets sharply scaled back expectations of another RBA hike after Thursday's jobs data. After Thursday's jobs data, the chance of a November hike fell from around 35% to 22%. With inflation still well above target, oil prices returning to March highs and the RBA's minutes pointing to growing domestic price pressures, we see a December hike as more likely than markets imply.

The week ahead

Jobs and Skills Australia Internet Vacancy Index, September (Wednesday, 21/10) - Job ads have held broadly steady since early 2025, at around 212,000 in August, which is a key reason we think the recent rise in unemployment is unlikely to continue. September's figures will show whether that stability is holding after two soft labour force prints, particularly in NSW and Victoria, where ads have already fallen back to 2019 levels.

Chart of the week: Job ad stability suggests the recent climb in unemployment is unlikely to continue much further

The stability in job ads, one of the forward-looking indicators of the labour market, supports the RBA's current stance that a sharp deterioration in the labour market doesn't appear to be playing out.

Job ads have historically led the unemployment rate, falling ahead of past rises in unemployment, including during the GFC. The relationship broke down in 2024, with Ads pointing to a quicker deterioration in the unemployment rate that didn't play out. Ads have held steady at a little above 200,000 since early 2025, and September's 4.7% unemployment rate has largely caught up with where they were pointing.

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