RBA says unemployment may need to rise further to curb inflation
Reserve Bank of Australia governor Michele Bullock has indicated that unemployment may need to rise further for inflation pressures to ease, adding to expectations that monetary policy could remain restrictive for longer.
Speaking at a Committee for Economic Development of Australia event in Sydney, Bullock said an unemployment rate somewhere between 4.5 per cent and 5 per cent would probably remove enough pressure from the labour market to help moderate inflation.
The RBA’s official transcript confirms Bullock did not nominate a precise unemployment target, but said the key issue was what level would sufficiently reduce supply-side pressure in the economy.
Australia’s latest available unemployment rate was 4.5 per cent in July, according to the Australian Bureau of Statistics.
Rate expectations build ahead of RBA meeting
Bullock’s comments came ahead of the RBA Monetary Policy Board meeting scheduled for 28–29 September. The official cash rate currently stands at 4.35 per cent after three increases totalling 75 basis points this year.
The report said bond markets had fully priced another increase to 4.6 per cent at the September meeting, which would take borrowing costs to their highest level since 2011. Markets were also assigning a meaningful chance to as many as two further increases.
Commonwealth Bank, ANZ, Westpac and NAB were reported to be forecasting another rise at the September meeting rather than November, while ANZ was the only major bank among the four expecting two additional increases.
Bullock has repeatedly emphasised that inflation remains above the RBA’s target range and that the labour market is still considered tight. In August, she said the economy needed some further easing in labour-market conditions as part of the process of returning inflation towards target.
Labour-market assumptions come under scrutiny
The discussion also highlights differences between shorter-term RBA forecasts and longer-term economic assumptions.
The 2026 Intergenerational Report, released by Treasury on 21 September, sets out projections for Australia’s economy and budget over the next 40 years.
According to the article, Treasury’s report assumes a non-accelerating inflation rate of unemployment, or NAIRU, of 4.25 per cent and projects labour-force participation rising towards 67.7 per cent by 2040.
Westpac chief economist Luci Ellis said the RBA’s unemployment forecasts were based partly on softer employment-growth assumptions. She argued that stronger labour-force growth could push unemployment towards 5 per cent or above, while also pointing to differences in productivity assumptions.
The RBA had forecast in August that unemployment would rise to 4.8 per cent by 2028. Bullock’s latest remarks suggest the level required to cool inflation could potentially be somewhat higher.
For property investors, that matters because further rate rises would increase debt-servicing costs and could influence borrowing capacity, transaction activity and property valuations. The outlook remains highly dependent on inflation, labour-market conditions and the RBA board’s assessment of whether demand is easing sufficiently.
SOURCE ATTRIBUTION:
Based on reporting by The Australian Financial Review, published 23 September 2026. Source: www.afr.com
