The seasonally adjusted unemployment rate stayed steady at 4.1 per cent in February, remaining below RBA forecasts of a sustainable unemployment rate.

BDO Economics partner Anders Magnusson said the RBA’s February unemployment forecast was unusual as it showed unemployment stabilising at 4.2 per cent, below their 4.5 estimate of full employment.

“This adjustment reflects the ongoing strength of Australia’s job market, which has consistently added an average of 40,000 jobs per month over the past 12 months to January without adding to inflation,” Magnusson said.

The surprising strength of the labour market has caused the RBA to project that core inflation will stabilise at a level above the target midpoint of 2.5 per cent but within the RBA’s target bands.

In a March speech, RBA deputy governor Andrew Hauser said the sustainable unemployment rate must be lower than the RBA’s current forecasts, which typically expect that an unemployment rate below 4.5 per cent will exert upward pressure on inflation.

This suggestion that unemployment can remain lower without stoking inflation is welcome news for workers.

However, the Fair Work Commission’s forward-looking average annualised wage increase (AAWI) data should prompt some caution in the context of Australia’s tight labour market, Magnusson warned.

“While the Wage Price Index is expected to increase by 3.4 per cent this year, the AAWI suggests a 5.2 per cent increase,” he said.

The Australian Bureau of Statistics (ABS) data also showed that total employment fell by 53,000 as fewer older workers returned to work, which was reflected in a drop in the participation rate. This followed higher-than-usual levels of employment in older age groups in recent years, the ABS said.

The participation rate reached record highs in late 2024, and fell slightly to 66.8 per cent in February.

“Despite the fall this month, the participation rate is still relatively high, having reached a historical high last month, and is 0.1 percentage points higher than this time last year,” Bjorn Jarvis, ABS head of labour statistics, said.

Looking forward, the RBA will likely take the labour market’s strength into consideration for future rate decisions, alongside the threat of a global tariff war.

“Given these internal and external factors, I think it is unlikely that the RBA will cut the cash rate in April. We will need to wait until May’s federal election for further cash rate relief at the earliest,” Magnusson said.