The unemployment rate in Australia increased to 4.1 per cent in January, representing an addition of approximately 500 jobs, the Australian Bureau of Statistics (ABS) has revealed. This represents the first time in two years that the unemployment rate has exceeded four per cent, with 22,000 people being officially classified as unemployed. This downturn also saw the number of hours worked fall by 2.5 per cent, contributing to an overall slowing of work hours since mid-2023. The rise in unemployment has been attributed in part to the Reserve Bank’s recent interest rate hikes, higher inflation, and a general sense of economic uncertainty. Policymakers have flagged concerns over the speed with which the unemployment rate has been rising and the potential implications if this trend continues.

Gareth Aird, a Commonwealth Bank economist, highlighted that the rate had risen quite sharply over the last five months. He projected that the rate could rise faster than the Reserve Bank anticipates this year. RBA governor Michele Bullock responded saying Australia doesn’t need higher interest rates right now. Mr Aird suggested that the RBA may need to introduce rate cuts this year to prevent the unemployment rate from exceeding 4.5 per cent.

While economists are suggesting a potential bounce back in employment rates in February due to seasonal factors, they also anticipate a slow increase in the unemployment rate over the year to 4.3 percent. This scenario could trigger a cut in interest rates as inflation drops down to around 3.5 per cent.

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