Australia’s unemployment rate increased to 4% in December, as revealed by the Australian Bureau of Statistics (ABS) on Thursday. The data indicates a mixed outlook for the economy, with job creation remaining robust while unemployment edged up, sparking uncertainty over whether the Reserve Bank of Australia (RBA) will implement an interest rate cut in February.

Despite the rise in the jobless rate, the Australian economy showed resilience with 56,300 additional people finding work. This suggests that more individuals are actively seeking employment, with the participation rate climbing to a strong 67.1%. However, there was a notable increase in part-time jobs, which contributed to the uptick in the unemployment rate.

The rise in job creation comes at a time when the labour market has been relatively tight, adding complexity to the RBA’s decision-making process. The Reserve Bank typically uses employment data as a key metric when determining monetary policy, and the recent figures suggest a delicate balance between labour market strength and growing unemployment. If the labour market were to weaken significantly, it could prompt the RBA to lower interest rates in an effort to stimulate economic activity.

Prior to the release of the employment data, investors were pricing in a 73% chance of a 0.25 percentage point rate cut in February, bringing the cash rate down to 4.1%. A rate cut would ease the burden on mortgage holders and provide some economic relief, particularly as inflation remains a concern for many households. However, despite the pressure from high living costs, core inflation has been moving closer to the RBA’s target range of 2% to 3%.

The labour market has been a key stabilizer for Australian households amid rising inflation and steep increases in the cost of living. Strong employment figures have enabled many families to manage these economic challenges. However, community stress is becoming evident, with food charities seeing a surge in demand. According to reports, an 8.3% decline in household spending on goods in December reflects the financial strain many Australians are experiencing. Renters, in particular, have been among the hardest hit, facing soaring housing costs.

The mixed jobs data also had an immediate impact on the currency markets. Although the Australian dollar traded slightly higher after the release of the ABS figures, currency traders were uncertain of how the data would influence future rate decisions. Normally, strong employment numbers would boost the local currency, while a weaker jobs report could drive it down, depending on expectations for future interest rate cuts.

As the Australian economy continues to navigate through a period of high inflation and rising living costs, the future direction of interest rates and its impact on the labour market will remain a closely watched topic. The RBA’s decision on February 6 will be critical in shaping the country’s economic landscape in the coming months.