Australian employment 56.3k in December; unemployment rate 4%

Robust employment growth in Australia has continued with a 56.3k rise in December once again blitzing modest expectations (15k) - a common theme throughout 2024. Strong labour demand drove a retightening in the labour market over the back half of the year. Market reaction to today's report was muted, although perhaps what that reflects is that a hawkish repricing of RBA rate cut expectations for the February meeting amid the rally in global bonds overnight is hard work. Essentially, the domestic labour market gives the RBA no reason to cut, but markets are betting that the upcoming Q4 CPI release (January 29) might. 

By the numbers | December 

• Employment accelerated by a net 56.3k in December (part time +80k/full time -23.7k), significantly outperforming the 15k consensus figure following a 28.2k rise in November (revised down from 35.6k).
• After falling to an 8-month low of 3.9% in November, the unemployment rate lifted back to 4.0% in December - in line with expectations; however, the underemployment rate fell from 6.1% to 6.0% - its 4th consecutive decline - to be at its lowest since February 2023. Total labour force underutilisation remained at 10.0%, holding at a low back to September 2023.  

• Labour force participation returned to cycle highs in December rising to 67.1% from 67.0% in the prior month. The employment to population ratio increased from 64.3% to 64.5%, also at record highs. 

• Hours worked advanced at their fastest pace in 9 months lifting by 0.5% month-on-month from flat growth in November; base effects saw annual growth surge from 2.1% to 3.2% (hours in December 2023 fell 0.5%m/m). Across the quarter, hours worked increased by 0.6%. 

The details | December 

Employment closed out 2024 surging by a net 56.3k in December. The gain was driven entirely by an 80k increase in part time work, the segment's largest contribution since the reopening from the 2021 Covid lockdowns. Full time work fell in December (-23.7k), a soft finish to a stellar year in which two-thirds (299k) of the total increase in employment in 2024 (444k) was in the full time segment.  

Across the quarter, employment lifted by 97k (0.7%), a solid result to follow the very strong gain seen in the previous quarter of 153k (1.1%). Employment gains averaged a little over 32k per month in the final quarter of the year, a comfortably sustainable run rate going into 2025 supported by job vacancies that remain at high levels.

Despite edging back up to 4.0% in December the unemployment rate remains historically low, while the broader trend of the labour market retightening into year-end continued. The underemployment rate stood at 6.6% at the start of 2024 and lifted to 6.7% by May but went onto to decline over the back half to end the year at 6.0% - its lowest level since February 2023. Labour force underutilisation followed a similar pattern declining from 10.6% to 10.0% over the year, indicating that current labour market conditions resemble the historical tights of earlier cycles. 

One of the defining features of the current cycle is that the strength of labour demand has been matched with a response from the supply side. Labour force participation ended 2024 on record highs (67.1%), up more than 1.5ppts on pre-Covid levels. Meanwhile, the employment to population ratio (64.5%) - the share of Australians (of working age) in work - has never been higher. 

Hours worked lifted sharply by 0.5% in December to be up by 0.6% over the quarter. That compares to a 0.8% rise in quarterly hours in Q3. Annual growth accelerated from 2.1% to 3.2%, its fastest pace in 16 months - albeit flattered by base effects. For much of the past 18 months, employment growth has outpaced hours worked. Reflecting that dynamic, average monthly hours trended lower in 2024: the 12-month average was 135.5 hours, down from 137.8 hours in 2023.   

In summary | December 

The Australian labour market was in robust shape as the sun set on 2024. Employment increased strongly through the year, continually defying expectations to weaken alongside a slowing economy. This saw labour market conditions retighten into year-end, with the unemployment rate around historic lows at 4.0% and below RBA forecasts for 4.3%. That balances with record high labour force participation. Elevated job vacancies point to the current momentum of employment being sustainable in 2025. 

Preview: Labour Force Survey — December

Australia's labour force survey for the final month of 2024 is due from the ABS this morning (11:30 AEDT). Employment growth remained resilient throughout 2024 and labour market conditions were retightening as year-end approached - highlighted by the unemployment rate returning to a 3 handle in November. However, with inflation cooling, the RBA at its December opened the door to easing monetary policy in 2025. Accordingly, market pricing for a February rate cut has built up to around a 75% chance. A very strong report today is likely needed to drive a hawkish repricing of those expectations.    

December preview: Markets calling a subdued finish to 2024 

Markets go into today's report holding modest expectations. Employment is anticipated to slow to 15k in December from a 35.6k rise last time out, with the unemployment rate ticking back up to 4.0% from 3.9% in November. As the chart below shows, employment (green line) throughout 2024 has consistently defied expectations (yellow line) to cool amid slowing economic growth. The growing consensus is that the resilience in employment has been driven by the non-market (or government) sectors of the labour market.  

In light of the momentum in employment, the 15k forecast for December is a pessimistic call - particularly so given that in the 3 months to November employment gains averaged almost 36k per month. Although markets are clearly not anticipating a repeat of the declines in employment seen in the Decembers of 2022 (-11k) and 2023 (-59.4k), the outlook is for a subdued finish to 2024. I see the risks as skewed to the upside of the 15k consensus.  

On the back of expectations for a softer employment outcome, the unemployment rate is forecast to tick back up from 3.9% to 4.0%, partly reversing the decline seen in November. For context, the unemployment rate has averaged 4.0% over the past 3 months, in line with its average across 2024. Current RBA forecasts have unemployment lifting to 4.5% by the end of 2025.  

November recap: Unemployment rate falls back below 4% 

The national unemployment rate fell to an 8-month low of 3.9% in November from 4.1% in October, defying an expected rise to 4.2% as employment reaccelerated. Coming off a modest rise in the prior month (12.1k), employment lifted by 35.6k (full time +52.6k/part time -17.0k) in November to outperform the 25k consensus figure.

Alongside the lower unemployment rate, the broader underemployment rate declined from 6.2% to 6.1% - its lowest level in 2 years. Factoring in the declines in both measures, total labour force underutilisation tightened from 10.3% to 10.0% in November to stand at a 14-month low. Labour force participation eased slightly in the month from 67.1% to 67.0% but remained near cycle highs.  

Hours worked came in flat in November (0%m/m) as a 0.2% increase in hours worked in the full time segment was offset by a 1.1% fall in part time hours. Annual growth in total hours eased from 2.2% to 2.1%. Since the back end of 2023, employment growth has been outpacing growth in hours worked, resulting in average hours worked per month slowing from around 137 hours to 135 hours. 

Macro (Re)view (10/1) | Fragile start to 2025

Upward pressure on global bond rates through the early part of the year extended on the back of strong US payrolls data. A more hawkish Fed, deficit concerns, and the policies of the incoming Trump administration continue to be bandied around. Spillover effects hit the UK this week as surging gilt yields once again put renewed focus on the sustainability of fiscal settings, with the Sterling weakening sharply in response. Sentiment was also dented by ongoing low inflation in China - stimulus efforts so far have fallen flat with markets. The euro remained under pressure despite December inflation data rising from 2.2% to 2.4%yr on a headline basis and core prices holding a steady 2.7% pace. Markets are priced for 3-4 ECB rate cuts in 2025. 

A 256k rise in US nonfarm payrolls in December far exceeded modest expectations (165k) and saw the unemployment rate fall from 4.2% to 4.1%. The participation rate was steady at 62.5%, while average hourly earnings growth softened from 4% to 3.9%yr. Overall, labour market conditions are strong and pricing for further Fed easing has been pushed back into the second half of the year. The hawkish turn taken by the Fed at its December meeting was reflected in the minutes published this week.    

Market expectations for a February RBA rate cut have strengthened to a 75% chance on the back of the December meeting minutes (published on Christmas Eve) and this week's inflation data. The minutes formalised the shift communicated by the RBA at the December meeting from actively pushing back against lowering rates to a more data-dependent approach. Accordingly, the Board acknowledged for the first time that it is prepared to lower rates 'in due course' if the data comes in line with or deteriorates relative to the RBA's forecasts (due to be updated at the February meeting); however, stronger data would delay cuts. 

With increased scrutiny on the data flow, a decline in underlying or trimmed mean CPI from 3.5% to 3.2%yr in November bolstered pricing for a February start to RBA easing (reviewed here). Markets looked through an uptick in headline CPI from 2.1% to 2.3%yr due to that largely being driven timing differences in payments of state and federal government electricity rebate schemes. Meanwhile, an underwhelming 0.8% rise for November retail sales (vs 1% expected) confirmed the Black Friday sales event in 2024 as notably more subdued than in 2023, supporting the near-term RBA easing case (reviewed here). 

On the other hand, the labour market remains strong and conditions were clearly tightening late last year highlighted by the unemployment rate falling to 3.9%. Alongside this, national job vacancies rose 4.2% for the 3 months to November, their first quarterly increase since mid-2022. In other Australian news, dwelling approvals declined by 3.6% in November (see here), while the trade surplus widened to $7.1bn as exports accelerated (see here).  

Australia's trade surplus widens to $7.1bn in November

Australia's goods trade surplus reached wides since the start of 2024 after increasing to $7.1bn in November from $5.7bn in October (from $5.9bn). A slightly narrower surplus of $5.6bn was expected by markets. Exports accelerated by almost 5% in November, their sharpest rise in 15 months to defy a broader downtrend since mid-2023 alongside declining commodity prices. Imports lifted 1.7% for the month as higher oil prices pushed up the cost of fuel imports. 

The goods surplus lifted to $7.1bn in November, its largest since January 2024 ($9.3bn) following outcomes of $5.7bn in October and $4.2bn in September. For the 3 months through November, the goods surplus averaged $5.7bn to be up marginally from the cycle lows seen through the middle of 2024. At its peak in mid-2022, the 3-month average for the trade surplus was pressing $16bn. The compression seen since reflects the retracement in commodity prices on global exchanges; the RBA's index of commodity prices is down more than 35% (USD terms) since peaking in 2022.    

Monthly exports lifted by 4.8% to come in at $43.8bn in November (-5%yr). The uplift was driven by an 18.1% surge from rural goods - its strongest one-month rise in almost 4 years - with rural products (34.6%), wool (10.2%), cereal (9.2%) and meat (4%) all moving higher. 

Exports were also supported by a 2.1% lift from non-rural goods on gains across the major resources: iron ore 4%, coal 1.5% and LNG 3.2%. Non-monetary gold also supported the lift in exports with a 10.3% rise in November.  

Imports advanced 1.7% month-on-month to $36.7bn to be up by 6.2% across the year. Intermediate goods increased by 1.2% as fuel imports lifted by 3.4%. Even with this increase, weaker oil prices have seen the value of fuel imports fall by 21.5% over the past year. Capital goods advanced by 3.3% in the month on increases in a range of equipment categories. Consumption goods softened in November (-0.5%) but remain at fairly elevated levels. 

Australian retail sales 0.8% in November

Black Friday sales in Australia slightly underwhelmed expectations with turnover in November rising by 0.8% against a forecast 1% gain. Annual growth slowed from 3.5% to 3.0%, reflecting that the Black Friday sales of 2024 were more subdued than in 2023 where November sales advanced by 1.3%. Nonetheless, the 0.8% increase was still the strongest gain for retail sales since the start of 2024, while sales had come in above consensus in two of the past three reports into today's figures. Overall, support from the Stage 3 tax cuts and other fiscal measures appear to be playing a role in bolstering household spending.  

Headline retail sales lifted by 0.8% in the month of November following a 0.5% increase in October (revised down from 0.6%), with Black Friday discounting and promotions boosting sales in both months. The Black Friday effect saw discretionary sales (headline sales ex-basic food) rising by 1% in November - their strongest gain since January 2024 - on the back of a 0.7% lift in October. The extended Black Friday sales period together with fiscal support measures including the Stage 3 tax cuts and electricity rebates have driven a pick-up in the momentum of retail sales growth. For the 3 months to November, headline sales averaged 0.6% and discretionary sales averaged 0.8% - both at highs since late 2023. 

In the month of November, turnover increased across all major categories in the sector. The chart below shows that of the 0.8% increase in headline sales, discretionary sales contributed 0.6ppt. Households took advantage of price discounting leading to broad-based gains: department stores 1.8%, clothing and footwear 1.6%, household goods 0.6% and other retailing 0.3% (including cosmetics). Meanwhile, the ABS picked up spillover effects to spending at cafes and restaurants (1.9%), likely boosted by increased foot traffic through shopping centres, and in basic food sales (0.5%).  

A key component of Black Friday sales occurs through online channels. Online sales increased at a solid pace over October (1.1%) and November (1.2%), equating to a rise in turnover of a little over $90m across the Black Friday period. However, that compares to a much larger boost in 2023 where online sales lifted by more than $125m over October (0.8%) and November (2.6%).  

Across the states, the notable aspect was the subdued pace of sales growth in New South Wales over the Black Friday period. That state accounts for a little over 30% of retail turnover nationally, the largest of all states. Annual turnover growth in New South Wales was running at a 2% pace in November, underperforming all other states by a clear margin: Victoria 3.5%, Queensland 4.0%, South Australia 2.7%, Western Australia 3.5% and Tasmania 2.8%.   

Australian CPI 2.3% in November

This morning's monthly Australian CPI inflation report for November drove a modestly dovish reaction in markets (softer AUD and lower bond yields), with a decline in underlying or trimmed mean inflation to 3.2% (from 3.5%) outweighing a stronger than expected rise in headline CPI from 2.1% to 2.3% (vs 2.2% consensus). The moves also came despite national job vacancies snapping an extended run of declines since mid-2022 to rise by 4.2% for the 3 months to November, pointing to signs of the labour market retightening. Market pricing for an RBA rate cut in February firmed to around 70%; however, the full quarterly CPI report for Q4 (due 29 January) will hold far more weight with the Board than today's release.    

Headline CPI ticked up from 2.1% to 2.3%yr in the ABS's monthly series in November, rising mainly on higher electricity and fuel prices. Timing differences between when the various federal and state government electricity rebate schemes have been applied drove a spike in the ABS's calculation of electricity prices in November (22.4%), even though the underlying price of electricity was little changed (see charts below). Fuel prices moved slightly higher in November (0.9%) - their first rise in 5 months - to also contribute to the lift in the headline CPI rate, though prices are still down more than 10% on a year ago.  

Looking at other key items, rents eased from 6.7% to 6.6% but remained elevated; however, there was better news in new home building costs as the inflation rate slowed from 4.2% to 2.8% - a low since July 2021 - with home builders offering discounts and other incentives. 

Grocery price inflation eased from 3.3% to 2.9%yr, its slowest pace since the start of 2022 as elevated inflation in volatile fruit and vegetable prices softened from 8.5% to 6%yr. This offset a lift in meat prices (1.3% to 2.4%yr). 

There was a notable slowing in holiday travel and accommodation costs from 8% to 3.8%yr as off-peak demand for destinations including Europe and north America led to discounting on airfares. 

Insurance costs looked to be easing into year-end slowing to 11%yr in November. That is down from an earlier peak of 16.5% in April 2024 after insurance premiums surged due to higher reinsurance, natural disaster and claims costs.  

Australian dwelling approvals ease back in November

Australian dwelling approvals eased from a near 2-year high in November after declining by 3.6% month-on-month (vs -1.0% expected). Approvals trended higher through 2024 but remain at low levels reflecting the impacts of higher interest rates and capacity pressures in the home building sector. The house or detached segment has driven the uptrend in approvals; however, house approvals saw back-to-back declines for the first time since early-mid 2023. A 5.6% decline in unit or higher-density approvals also contributed to the fall in headline approvals. 

Headline dwelling approvals fell by 3.6% in November as approvals declined in both the house (-2.2%) and unit segments (-5.6%). Approvals were coming off strong gains in September (5.4%) and October (5.2%). For the 3 months through November, approvals averaged 15.1k - a high back to December 2022, and 16.4% above the cycle low from March 2023 (13k). 

House approvals fell 2.2% in the latest month following a 3.8% fall in October, their first back-to-back declines in nearly 18 months. The state level data indicates the declines have been broad based across the nation. 

In the alterations segment, the value of work approved remained elevated near the end of 2024 at $1.1bn. Although the volume of alteration work being done has been retracing from the highs associated with the HomeBuilder stimulus during the pandemic, cost increases have kept the value of alteration approvals high. 

Using 3-month averages to smooth the volatility, higher-density approvals - notwithstanding November's decline - have shown some encouraging signs. This has come mainly off the back of an uptick in high-rise approvals. 

Macro (Re)view (20/12) | Fed turns hawkish into year-end

A hawkish turn from the Fed drove a steeper yield curve and a stronger dollar this week, setting global equity markets back. Although the Fed was expected to signal a slower pace of easing heading into next year, the shift went further than markets had anticipated. In other central bank news, a 25bps rate cut went through in Sweeden; the Bank of Japan held all policy settings; the Norges Bank was unmoved at 4.50%; while the Bank of England also kept a steady hand (more below).     

The Fed left markets with a hawkish imprint despite signing off for 2024 with an expected 25bps rate cut in fed funds to 4.25-4.5%; meanwhile, the reverse repo rate was adjusted 30bps lower to be flat to the fed funds floor (4.25%). However, all the action took place away from the policy decision. The Fed's summary of economic projections signalled a reduction in rate cuts in 2025 from 4 to 2, leaving policy 50bps tighter through 2026 (3.4% vs 2.9%). 

At the post-meeting press conference, Fed Chair Powell said that having lowered rates by 100bps, policy was now 'significantly less restrictive' setting the FOMC up to be 'more cautious' in making further reductions. Whether the shift reflects what the Fed has seen in the data or the anticipation of what 2025 could bring as Trump's pro-growth agenda comes to fruition is open to interpretation. While concerns over the labour market triggered the easing cycle, Chair Powell said those risks had receded but on the other hand inflation - while still on track to come back to the 2% target - was making slower progress than the Fed would like. Accordingly, the FOMC's inflation outlook was raised: headline PCE now seen ending 2024 at 2.4% (vs 2.3% prior) before firming to 2.5% in 2025 (vs 2.1%), while the core PCE profile was also revised up: 2.6% to 2.8% this year; 2.2% to 2.5% next year; and 2% to 2.2% in 2026. 

In the UK, the BoE's decision to hold rates at 4.75% came with a dovish shift in the vote split from 8-1 (hold-cut) in November to 6-3 on Thursday. Markets viewed the shift as somewhat surprising given key wage and inflation readings on the eve of the meeting either lifted or remained elevated. Average earnings pushed up from a 3-month annualised pace of 4.8% to 5.2% in October, above the 5% consensus figure. Meanwhile, increases in the year-on-year rates in November saw headline CPI rise from 2.3% to 2.6% (vs 2.6%) and core CPI firm from 3.3% to 3.5% (vs 3.6) as services prices held a 5%yr pace (vs 5.1%) - the latter two measures and wages growth having been clearly articulated by the BoE as central to its reaction function. 

The meeting minutes outlined that the three MPC members (Dhingra, Ramsden and Taylor) voting to cut by 25bps had read the conditions domestically as being characterised by weak growth and a cooling labour market, with higher uncertainty offshore also posing risks to the UK economy. However, the core of the MPC stuck with its guidance of a 'gradual approach to removing monetary policy restraint' and keeping rates 'restrictive for sufficiently long' until a return to 2% inflation was more assured.   

Australia's mid-year budget update (MYEFO) reported a deterioration in forecast deficits ($122bn to $144bn) amid increasing pressures on government spending and slowing revenue upgrades (reviewed in detail here). Market reaction was sanguine - the AOFM only modestly raised its bond issuance plans for the current financial year from $90bn to $95bn, a funding task roughly 50% complete already.

Whereas post-covid economic tailwinds swung the budget into surplus in 2022/23 and 2023/24 and gave the government headroom to fund new policy measures, that dynamic has now turned. Factoring in the new policy decisions included in MYEFO on top of those announced when the budget was tabled in May, new government measures - a combination of discretionary decisions and responses to existing pressures - come at a net cost of $40.7bn over the next 4 years, far outweighing an expected $5.1bn net boost to revenue over the period generated by the underlying economic conditions.

However, the continuation of strong public demand (government spending and investment) is a key factor behind Treasury's forecast for the labour market to remain resilient and for GDP growth to rise back to a trend pace over the next couple of years. As a result, the rise in the net debt to GDP profile is modest - certainly by global standards - forecast to lift from 19.6% to 22.4% across the forward estimates. 

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Thanks for reading Macro View through the year. 

A Merry Christmas and Happy Holidays to all,

James 

Australia MYEFO 2024/25: Deficit trajectory widens

In Canberra today, Treasurer Chalmers presented the mid-year update of the federal budget for 2024/25 handed down in May. MYEFO revealed a near $22bn deterioration in forecast deficits across the forward estimates, driven by an outlook for increased government spending - partly due to structural pressures on the budget and new policy decisions. Wider deficits drive increased government debt, but public demand is set to remain a key support for growth in the Australian economy.   

MYEFO 2024/25 | Fiscal Position

After consecutive budget surpluses in 2022/23 ($22.1bn) and 2023/24 ($15.8bn), the federal budget tabled in May forecast that Australia's fiscal position would deteriorate over the coming years. Today's mid-year update reported that the scale of that expected deterioration has increased. 

Although the deficit projected for the current financial year (2024/25) has narrowed from $28.3bn to $26.9bn, larger deficits are now anticipated across the forward estimates: $46.9bn in 2025/26 (from $42.8bn); $38.4bn in 2026/27 (from $26.7bn); and $31.7bn (from $24.3bn). Cumulatively, deficits are expected to run to $143.9bn over the next 4 years, widening from $122.2bn forecast in May's budget. 

This represents a stark turnaround. Australia ran sizeable surpluses coming out of the pandemic in 2022/23 and 2023/24 as the dynamics all turned in favour of increasing government revenues; economic growth rebounded sharply, reopened borders saw population growth surge, commodity prices hit elevated levels, and wages growth and inflation accelerated as the labour market tightened. But with those tailwinds now dissipating, the outlook is for the budget to be left exposed to structural pressures. Last year's Intergenerational Report identified 5 major structural pressures on the budget: health, aged care, NDIS, defence and debt interest.     

  

MYEFO 2024/25 | Overview 

The key movements in the budget balances in MYEFO compared to the May budget are illustrated in the chart below. 

In the current financial year, the forecast deficit has narrowed from $28.3bn in May to $26.9bn in MYEFO, with parameter changes the driving factor. Effectively, stronger-than-expected economic conditions are set to generate a larger tax-take for the government than forecast in May, marked up by $2.8bn. Resilient labour market conditions boost taxes from individuals by $8.9bn, while taxes from super funds are $2.1bn higher. However, company taxes have been lowered by $6.6bn since May - their first downgrade since 2020/21 - due to lower commodity prices hitting mining sector profits.   

In the out-years, the key dynamic is government spending (or payments) rising more quickly than government revenues (or receipts). This leads to wider deficits than forecast in the May budget.

Forecast government revenue was actually upgraded each year - but on a slowing trajectory - by $9.1bn in 2025/26, $3.4bn in 2026/27, and $2.3bn in 2027/28; however, those upgrades are outweighed by forecasts for uplifts in government spending of $13.1bn in 2025/26, $15bn in 2026/27 and $9.6bn in 2027/28.

Policy decisions taken since May and included in today's MYEFO cost the budget $19.1bn over the next 4 years. The new initiatives include: wage increases in the early education sector ($3.6bn); expanded Pharmaceuticals Benefits Scheme listings ($2.5bn over 5 years); NDIS funding ($0.9bn); improved child care access ($0.8bn); renewable energy ($0.8bn); and road and rail infrastructure ($0.7bn).     

Another policy decision of note is the government's plan to reduce student loans by 20% at a cost of $20bn over 4 years; however, that item has been treated as an 'off-budget' measure that hits the headline rather than the underlying cash balance.

Meanwhile, increased demand for government programs including in aged care, child care and disability support services, as well as higher debt servicing costs see parameter variations pushing up government spending by $23bn over the next 4 years. 

As a result of widening budget deficits, government borrowings will increase. Net debt is projected to rise from 19.6% of GDP this financial year to 22.4% by 2027/28, an increase in nominal terms of around $170bn over the period.   

MYEFO 2024/25 | Economic outlook 

Treasury's economic outlook for global growth has remained broadly unchanged since MYEFO, with the risks 'tilted to the downside'. The main headwind to Australia from offshore is moderating growth in the Chinese economy, which weighs on the outlook for commodity prices - reflected in a weaker terms of trade and slower nominal GDP growth (see domestic forecast table). Treasury noted that if its outlook for growth in China materialises, this would be the slowest 3-year period of growth there since the 1970s; however, the effect of recent stimulus announcements by the authorities remains to be seen.  

On the domestic front, Treasury continues to forecast a soft landing scenario, where the economy continues to grow as inflation gradually comes back to the RBA's 2-3% target band. The increase in government borrowings bolsters the outlook for growth in Australia; however, growth is still seen tracking a below-trend pace (sub 2.5%) over the next couple of years. As a result of below-trend growth, the unemployment rate is projected to rise to a peak of 4.5% with wages growth softening to a 3% pace. Headline inflation is forecast to return to the midpoint of the RBA target band in 2026/27.   

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