BCEC Monthly Labour Market Update – October 2025

• Unemployment rate falls back to 4.3 per cent, down from ‘surprise’ 4.5 per cent in September.
• Growth in full-time employment, hours worked, and vacancies, and a fall in under-employment all underscore resilience in employment conditions.
• No interest rate relief on the horizon for mortgage holders.

Labour market back on course in October

After the September labour force figures set some alarm bells ringing, the latest data for October are consistent with a more orderly softening of the labour market in line with Treasury and Reserve Bank forecasts.

The headline unemployment rate fell back to 4.3 per cent in October, reversing September‘s increase to 4.5 per cent. Employment grew by 42,200 workers, with an encouraging 55,300 increase in full-time employment. That marked the strongest monthly jobs growth for six months.

Other indicators joined forces to allay fears of a looming labour market slump. The fall in unemployment was achieved without any decline in the participation rate, which remained at 67 per cent, just 0.2 ppts shy of its record high. Aggregate hours worked jumped 0.5 per cent in the month and underemployment fell. The fall in job vacancies appears to have been arrested, with two modest increases since reaching a low in August.

The underemployment rate is measured as the percentage of people in the labour force who are either employed part-time and would like to work more hours, or who are normally full-time workers but had reduced hours in the reference week. The rate dropped to 5.7 per cent in October, and is 0.5 ppts lower than October last year, suggesting underlying demand for labour remains strong.

Notwithstanding the strong October figures, the longer-term view remains one of a labour market that has cooled somewhat. The current unemployment rate of 4.3 per cent compares to an average of 4.1 per cent through the first half of 2025, and 4.0 per cent in calendar 2024. Annual employment growth to October stood at 1.6 per cent, well below its long-run 10-year growth rate (2.2%) and below the rate needed to absorb the ongoing growth in the working-age population (currently running at 2.0% p.a.) without the unemployment rate rising.

All that’s broadly consistent with the unemployment rate settling at around 4.4 per cent through the rest of 2025 and into 2026 as per the Reserve Bank’s latest forecasts.

CPI shock rules out interest rate cut until well into 2026

While the labour market is playing its role in the RBA’s plans to engineer a ‘soft landing’ as it reins in inflation, prices are not. The annual increase in prices recorded in the July (2.8%) and August (3.0%) monthly CPI series had us bracing for bad news from September’s full quarterly readout. The actual outcome surpassed the most pessimistic of expectations, with the CPI up 3.5 per cent over the year to the month and 3.2 per cent to the September quarter.

Just one month ago, all the pieces seemed to be falling into place. Inflation had returned to the bottom of the RBA’s 2-3 per cent target range as the unemployment rate gradually rose to 4.3 per cent. Suddenly, the unemployment rate hit 4.5 per cent in September followed by the shock CPI figures, and the term ‘stagflation’ was even getting a run in some quarters.

In a significant change, the ABS is implementing a complete monthly CPI series commencing with the next (October) figure. The existing monthly series incorporated price changes for only a subset of the basket of goods and services included in the CPI each month, which is why the RBA focussed on the full quarterly series.

However, since many prices are only adjusted at certain times in the year, such as school fees and council rates and levies, the RBA will continue to put limited weight on single monthly figures. The October CPI figure will be released on 26 November. Whatever the outcome, the RBA’s Monetary Policy Board won’t be contemplating a rate cut when they meet on 8-9 December.

We suspected the labour market had a bit more resilience than the September labour force figures implied, and the October figures confirm that. It would take a stark deterioration in employment conditions by January and three benign monthly CPI figures to pave the way for an interest rate cut when the RBA Board reconvene in early February 2026.

The discussion is just as likely to be around how far into 2026 the next move in interest rates will be – and perhaps even whether that move will be up.