BCEC Monthly Labour Market Update – February 2026

• Unemployment rate rises to 4.3 per cent, up from 4.1 per cent.
• Solid increase of almost 50,000 jobs, as a fall in full-time jobs is offset by a big jump in part-time employment.
• Rising energy prices and investor uncertainty associated with Iran conflict likely to lead to slowing economy and job losses in coming months.

Bleak outlook for either homeowners or the economy… or both

As energy prices and inflationary pressures surge due to the war in Iran, there’s been no shortage of critics of the Reserve Bank’s decision to lift the cash rate by another 0.25 basis points to 4.1 per cent at its March Board meeting. The release of the February labour force figures two days later featuring a 0.2ppt increase in the unemployment rate to 4.3 per cent only served to add further fuel to the voices of dissent.

Why try to use interest rates to dampen domestic demand and inflation when sky-rocketing oil prices are driven by a purely external shock? And why pile more pain on households now when unemployment was already rising.

In defence of the RBA, the inflationary outlook had deteriorated since their prior meeting. At that meeting on February 3-4, the cash rate was lifted to 3.85 per cent and we got a detailed readout on the RBA’s outlook through the Statement on Monetary Policy. That included a forecast for annual inflation to hit 4.2 per cent in the coming June quarter, well above the RBA’s 2-3 per cent target range.

Key data releases between then and the most recent meeting suggest the inflation outlook was even worse. GDP figures for the December quarter 2025 revealed the economy and domestic demand growing stronger than anticipated. Labour force figures for January, released on February 19, suggested the labour market was tighter than anticipated.

So in all likelihood, the RBA didn’t increase rates in response to the jump in oil prices. Rather, the Board were already set to increase rates, and developments in the Middle East almost prevented them, given the vote to increase rates came down to the wire: five Board members in favour, four voting to keep them on hold.

We won’t know for sure until the minutes are released. However, there are clearly some downside risks associated with the rate rise. Uncertainty will hit investment, hiring intentions, and consumer sentiment, with a recession a real possibility if global tensions and oil shortages persist.

Based on the weighting of automotive fuel in the CPI we calculate that the recent jump in petrol prices – if sustained – will directly add around a full 1 ppt to inflation. With the flow-on effects of rising transport costs into the prices of other goods and services, inflation could easily rise to 6 per cent by the middle of the year, rather than peak at 4.2 per cent. The unfortunate implication is that homeowners’ only hope for interest rate relief would be in the form of a sharp deterioration in the economy. We felt the lesser of two evils may have been to keep rates on hold: to risk higher inflation for longer, rather than potentially deepening a recession.

February labour force figures hard to read

The rise in the unemployment rate to 4.3 per cent shouldn’t be taken to mean the labour market was already weakening in February. Almost 50,000 additional jobs – about twice the growth expected – and a 0.2ppt increase in the participation rate to near-record levels indicate labour demand remained strong. On the other hand, vacancies took a sharp dip and full-time employment contracted.

There was also considerable volatility in a number of the estimates. This included suspiciously large jumps in male part-time employment nationally (up 3.7% for the month), and for NSW in total employment (+1.0%) and participation (+0.5ppt).

It’s important to note, these data were collected with respect to Australians’ labour force activity in the first two weeks of February, well before the attack on Iran commenced on 28 February. The reference weeks for the March figures are also the first two weeks of the month, leaving little time for the conflict to impact on those figures. We anticipate the unemployment rate will jump in response to the current oil shock, but effects might not become clear until April’s figures are released on 21 May.