National

Jobs data next test to work out interest rate outlook

Jun 25, 2026

For sale sign on property in the suburb of Fitzroy in Melbourne — The RBA has more data to ponder before homeowners find out its next rate movement. -AAP Image

Jobs figures could be crucial to determining the next interest rate move following a worrying inflation report for the Reserve Bank.

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Even though headline inflation data fell in May, the second-round effect of higher oil prices are beginning to appear in the Australian economy.

The trimmed mean - a measure of underlying inflation closely watched by the central bank - climbed to 3.6 per cent in the 12 months to May, which was higher than expected by forecasters, the Australian Bureau of Statistics reported on Wednesday.

Despite an 11.9 per cent fall in fuel prices for the month, prices were still higher than before the onset of the Middle East conflict and businesses were passing on higher transport and material costs, Challenger chief economist Jonathan Kearns said.

A three-monthly measure of the trimmed mean, which filters out some of the noise from the relatively new monthly measure, has been stuck about 0.8 per cent, the former RBA official said.

"That's too high for the RBA to be comfortable," Dr Kearns said.

IG market analyst Tony Sycamore said May labour force figures, due to be released on Thursday, would provide the next important test of the economy.

The jobs market has been showing signs of softening after the unemployment rate climbed to 4.5 per cent in April.

"A rise in the unemployment rate to 4.6 per cent or higher would add weight to the view that the RBA has done enough," Mr Sycamore said.

"While a stronger jobs print of 4.4 per cent or lower would keep tightening risks firmly on the table, with a firm eye to the June quarter inflation report scheduled for release on 29 July."

The RBA, which kept the cash rate on hold at 4.35 per cent at its June meeting, will still have another set of inflation and employment figures before it next convenes in August.

But Wednesday's figures were enough for Citi Australia researchers Faraz Syed and Josh Williamson to push back their prediction of the next rate hike from August to November.

"We cut our trimmed mean forecast to 0.8 per cent and headline inflation to 0.9 per cent for (the June quarter), following today's May monthly CPI," they said.

"The data likely provides the RBA with enough space to hold rates at its August meeting."

Another hike was still justified because the real cash rate - meaning the cash rate minus inflation - was barely positive, unit labour costs remained high and there were risks that government spending would come in higher than forecast, the duo said.