The Australian Bureau of Statistics has released its latest unemployment data, revealing that the national unemployment rate remained unchanged at a historically low 4.1% in February.

While the participation rate dipped slightly to 66.8%, the number of employed individuals fell by 53,000, with unemployed individuals decreasing by 11,000. Interestingly, fewer older Australians (55+) are returning to work, while employment continues to grow for those aged 15 to 54.

The RBA closely monitors employment and inflation data to guide future monetary policy decisions. Whilst a strong job market is a positive sign for Australia, it also raises important questions about how it could impact interest rates and your mortgage repayments. To understand the potential impact, let’s break down the relationship between unemployment, inflation, and the Reserve Bank of Australia’s (RBA) monetary policy.

The Link Between Low Unemployment and Inflation

Low Unemployment and Consumer Spending

When unemployment is low, more people have jobs, which generally leads to increased consumer spending. This higher demand for goods and services can push prices up, contributing to inflation. If inflation rises too much, the RBA may step in to adjust monetary policy to keep the economy stable.

Low Unemployment and Wage Growth

Additionally, when unemployment is low, businesses must compete for a smaller pool of workers. This has the potential to drive wages up as employers offer higher salaries to attract and retain staff.  Higher wages mean more disposable income for workers, which can also increase consumer spending.

Low Unemployment Impact on Business

Higher Labour Costs

As wages rise, businesses face increased expenses. Some companies may absorb the costs, while others pass them on to consumers through higher prices, contributing to inflation.

Investment Decisions

If businesses expect ongoing strong demand, they may invest in expansion, hiring more staff and purchasing new equipment. However, if wage costs rise too quickly, businesses may cut back on hiring or delay investments.

How the RBA uses this data to guide monetary policy

If wage growth contributes to rising inflation, the RBA may delay interest rate cuts or even raise rates to prevent the economy from overheating. However, if inflation continues to ease despite strong employment, the RBA could feel more comfortable lowering rates. If economic conditions weaken unexpectedly, rate cuts could come faster to support growth.

What to Expect from the RBA

Market analysts have been speculating about a possible rate cut at the RBA’s next meeting on March 31–April 1, following February’s 25-basis-point cut—the first in over a year. However, with inflation easing to 3.2%, the RBA may take a “wait and see” approach before making further changes.

What This Means for Your Mortgage

With interest rates at a turning point, now is the perfect time to review your home loan and ensure you’re not paying more than you need to. Whether rates hold steady or begin to fall, having the right mortgage strategy in place can help you save thousands over time.

Contact Aspire Mortgage & Finance today for a free mortgage review and find out how much you could save!