Australian CPI slows to 3.8% in June

Australian inflation defied expectations to reaccelerate in June, driving hawkish bets on further RBA hikes to recede to a less than 5% chance for the August meeting and only around 50% by year-end. Headline inflation declined for the second month in succession in June (-0.1%), seeing the annual pace slow from 4% to 3.8% - against an expected rise to 4.2%. The key trimmed mean inflation rate for the June quarter - the most influential figure for the RBA in light of its concerns about second-round price rises from the oil shock - also came in soft relative to both market and RBA forecasts, printing at 0.8% quarter-on-quarter and 3.6% year-on-year.   

Headline inflation fell for the second consecutive month, down 0.1% in June after the 0.7% decline in May. Over the quarter, headline inflation was 0.6%, well down from the 1.4% surge in the March quarter. Annual inflation eased from 4% to 3.8% in the monthly series, while in the quarterly data it slowed from 4.1% to 3.9%. As a reminder, the ABS moved from quarterly to monthly inflation releases late last year - but the RBA still prefers the quarterly series.   

In June, fuel (-10.9%) remained the major driver of lower inflation, while price discounting for clothing and furniture also played a role. On the other hand, housing-related costs continued to add to inflation, with rising electricity prices, construction costs and rents all a factor. Meanwhile, overseas travel costs rose due to strong demand, and grocery prices lifted for a 4th straight month.  

Turning back to fuel, prices were down another 10.9% in June following declines in May and April after the federal government halved the excise tax to ease pressure from the oil price shock. Over this period, fuel prices have fallen near on 27%, a direct reduction of around 1.1ppts in the headline inflation rate. Remarkably, fuel prices in June were actually lower than in February - before the conflict in the Gulf disrupted global oil supply. The excise tax cut was subsequently extended by the government through July, but only at half its earlier rate.  

Underlying inflation measured by the trimmed mean was below market and RBA expectations; however, it still remains well above the central bank's 2-3% target band. As reaffirmed by Governor Bullock in yesterday's speech, above-target inflation in her view reflects a combination of strong demand, supply constraints and weak productivity.

Trimmed mean inflation in June was 0.3% month-on-month, while it came in at 0.8% in the quarterly series. The annual pace lifted from 3.8% to 3.9% in the monthly data. In the quarterly series, the annual pace was little changed at 3.6% - below the 3.8% pace projected by the RBA in its May forecasts. 

Key drivers of underlying inflationary pressures have come in housing costs as well as market services. Housing inflation has increased by 6.8% over the past year; electricity prices are up 22.4% as government rebates have ended; construction costs have risen 5.8% amid capacity pressures and as developers have withdrawn incentives, while rents have lifted 3.6%. However, Governor Bullock said the housing market has slowed more sharply than anticipated as it works through higher interest rates and the tax changes set out in the federal budget. 

Market services inflation rose by a solid 1% for the month in June to be up 3.7% over the year. That was its fastest annual pace since December last year. Although the RBA is likely to keep interest rates on hold for now, a combination of elevated underlying and services inflation will see it retain a hawkish narrative.  

Preview: Australian Q2 CPI

Australia's latest inflation report is due today (1130 AEST). In addition to the monthly figures, the report also includes the quarterly inflation rates the RBA tends to place more weight on in setting interest rates. Declining fuel prices have taken some of the pressure off inflation and allowed the RBA to pause its tightening cycle at its June meeting. However, RBA Governor Bullock reaffirmed yesterday that the Board is prepared to hike further. Today's report shapes as the key input ahead of the August meeting where expectations for a rate hike currently sit at only around a 30% chance. 

A recap: Fuel excise tax cut lowers inflation 

Inflation eased in May, largely due to lower fuel prices. Headline CPI fell 0.7% month-on-month - its steepest fall in a single period since the outset of the pandemic - slowing the annual pace from 4.2% to 4%; however, underlying inflationary pressures continued to rise. The trimmed mean CPI was up 0.4% month-on-month, lifting from 3.4% to 3.6%yr - a near two-year high. 

The fall in headline inflation was driven by declining fuel prices in response to the federal government halving the excise tax - a temporary measure for 3 months (effective April 1), providing some relief from the oil price shock stemming from the Middle East conflict. 

As a result, fuel prices declined by 7% in April followed by a further 11.9% fall in May. Holiday travel (-6.9%) was another key factor that weighed on inflation due to seasonal weakness in demand. However, housing-related costs and groceries - near on 40% of the CPI basket - were adding to inflationary pressures in May. 

Meanwhile, quarterly inflation as at the March quarter was running at 1.4% quarter-on-quarter and 4.1% year-on-year in headline terms and 0.8% quarter-on-quarter and 3.5% year-on-year on a trimmed mean basis. 

June preview: Inflation expected to rise again 

After easing in May, headline inflation is forecast to have picked up again in June. The federal excise tax cut drove further declines in fuel prices; however, inflationary pressures are likely to have risen across housing and services. 

For the monthly series, headline inflation is forecast to come in around 0.4% month-on-month, with the annual pace rising from 4% to 4.2%. Underlying or trimmed mean inflation is also expected to come in at 0.4% month-on-month, firming from 3.4% to 3.6% year-on-year.

More market reaction is likely to be generated by the quarterly figures. A 0.7% lift in the quarter is expected to see annual headline inflation ease from 4.1% to 4%; however, the trimmed mean is anticipated to rise 0.9% quarter-on-quarter, increasing the year-on-year pace from 3.5% to 3.7%. By comparison the RBA's most recent forecasts from May had headline inflation running significantly higher at 4.8%, and the trimmed mean a touch stronger at 3.8%.   

Macro (Re)View (24/7) | Renewed risks

Mounting supply concerns amid near on two weeks of strikes in the Gulf saw Brent crude oil rise to highs since May above $100/bbl before it fell back to close around $93/bbl on Friday. Renewed inflationary concerns underpinned higher UST yields and USD strength, with markets looking toward next week's meeting by the Federal Reserve for more insights on how tolerant the institution now led by Chair Warsh will be to inflation running above target. Despite posting strong results, investors remain uncertain over the ability of the hyperscaler businesses (including Google, Amazon and Meta) to generate adequate returns from surging capex investment.    

 

The ECB left its key interest rates, including the depo rate (2.25%), unchanged this week as widely expected. While President Lagarde said at the press conference the decision was unanimous, post-meeting reporting indicates the ECB is on track to hike in September in follow up to the hike in June. Inflationary risks that appeared to be easing in recent weeks have been renewed by the re-escalation of conflict in the Gulf. Accordingly, the ECB changed its risk assessment, with Lagarde saying there were now downside risks to growth and upside risks to inflation whereas previously the risks were seen as broadly balanced, partly as a response to the June rate hike. 

In the UK, data for May reaffirmed labour market weakness though inflationary pressures remained persistent in June. The BoE has been placing more weight on the former and unless that changes, rates in the UK are set to stay on hold. Payrolled employment declined in May (-4k) as the estimated unemployment rate held steady (4.9%). Meanwhile, headline inflation slowed from 2.8% to 2.6%yr (vs 2.7% forecast); however, both annual core and services inflation came in 0.1ppt above estimates at 2.6% and 3.6% respectively.   

Strong Australian jobs growth in June revamped hawkish bets on the rates outlook, even though the unemployment rate is tracking above the RBA's forecasts. Pricing for an August rate hike has increased to around a 33% chance from around 20% previously, while pricing for a 25bps hike by year-end is now essentially fully discounted. Next week's key inflation report for the June quarter will likely have the final say ahead of the next RBA meeting on August 10-11. 

The labour market added 76.3k jobs in the month, beating modest expectations (15k) as well as keeping the unemployment rate anchored at 4.4% amid a large increase in labour force participation (67%). However, employment was bolstered by a large number of people employed in prior months starting work in June. 

Meanwhile, the unemployment rate averaged 4.4% in the quarter, slightly above the RBA's forecast for 4.2%. Additionally, increased levels of underemployment (6.5%) and underutilisation (10.9%) to highs since 2024 and 2021 respectively were also signs consistent with reduced labour market tightness. More detailed analysis of the report is available in my review here. 

Australian employment 76.3k in June; unemployment rate 4.4%

Australia's unemployment rate held at 4.4% in June following the strongest rise in employment in over 12 months. Employment surged by 76.3k - well above the expected increase of 15k - helping to absorb a sharp jump in labour force participation (67%). The report boosted pricing for an RBA rate hike in August from around a 1 in 5 to a 1 in 3 chance; however, the unemployment rate is actually rising slightly faster than forecast by the RBA, while broader measures indicate that labour market conditions may not be as tight as it previously assessed.    

Employment rose by a well above consensus 76.3k in June, its strongest increase since the 104k surge in April last year. Both major segments contributed: part time up 47k (now up 83.9k over the past two months) and full time 29.3k. The ABS noted in today's release that a large number of people who were waiting to start in work in May was a factor in the upside result.  

In addition to the June numbers, backward revisions were positive, with employment in May lifted to 44k (from 40.3k previously) while the decline in April was reduced to 38.6k (from -40.7k). Taken together, employment increased by 81.7k or 0.6% in the quarter, its strongest rise since Q3 2024. The 3-month average for employment gains jumped to 27.2k having slowed to just 8.6k in May. Through the first half of the year, employment increased on average by 26.9k per month. Volatility from one month to the next has been elevated but momentum in the latest quarter and for the year to date suggests employment is rising at a solid pace.  

The sharp rise in employment helped to absorb a very large increase in the labour force (89.1k) in June as the participation rate rose from 66.7% to 67%, a 10-month high. This saw the unemployment rate hold at 4.4% in June. While this was in line with its average for the quarter as a whole, it rose from 4.2% in the March quarter. This also sees unemployment tracking slightly above the RBA's forecast trajectory (4.2%). Additionally, upward revisions to prior months and increases in June lifted the broader underemployment rate to 6.5% and total underutilisation to 10.9%, their highest levels since August 2024 and December 2021 respectively. 

Rounding out the report, hours worked again surprised rising by only 0.2% in the month, underperforming the increase in employment (0.5%). However, the two were closer in sync across the quarter, with hours worked up 0.5% to go alongside the 0.6% rise in employment.  

Preview: Labour Force Survey — June

The latest update of Australian labour market conditions is due today (1130 AEST). A modest rise in employment of 15k is expected to hold the unemployment rate steady at 4.4% in June. Market pricing places only around a 20% chance of an RBA rate hike in August, rising to around 75% by year-end. If there is to be a hawkish revamp of those expectations, next week's key quarterly inflation data is far more likely to be the catalyst than today's report.    

June preview: Steady as it goes 

Expectations for employment have dropped back to a 15k rise in June - roughly half the gain forecast last time out - though the band of estimates covers a significant range (0-50k). The higher consensus figure for May was driven by expectations for a seasonal rebound in employment after Easter. The unemployment rate is forecast to print at an unchanged 4.4% (range: 4.3-4.5%).    

May recap: Employment surges drives unemployment rate down   

Employment posted its strongest increase of 2026 rising by 40.3k in May - but only after falling by 40.7k in April amid the Easter holiday period. That saw the unemployment rate fall back to 4.4% after it rose to 4.5% in April, its equal highest since late 2021, while labour force participation lifted to 66.7% from 66.6%. Hours worked were again the surprising aspect, falling 1.1% in May despite the sharp increase in employment, reversing its 0.9% rise in April when employment fell. 

May's increase in employment was heavily weighted towards the part time segment (35.2k), though full time also contributed (5.2k). While recent outcomes have been volatile, employment has largely been in a holding pattern. Employment gains are averaging around 15k per month this year and only around 6k for the past three months. 

Macro (Re)View (17/7) | Renewed concerns

An AI-related breakthrough in China renewed concerns over lofty tech sector valuations and proved a stronger headwind for equity markets this week than rising oil prices amid the re-escalation of hostilities in the Gulf. The Nasdaq fell nearly 3% this week, while Asian markets saw much steeper declines of 6-8%, as investors worried that the potential emergence of lower-cost AI models could undermine the returns from the ongoing capex boom in data centres. WTI Brent crude lifted more than 15% to around $82/bbl, its highest levels in a month. Despite this, UST yields declined as pricing for Fed rate hikes moderated after inflation data for June was cooler than expected - but multiple Fed officials, including Chair Warsh said inflation risks have not abated. USD upside, having rallied more than 3% over May and June, remained capped. 

Fed rate-hike expectations for the July meeting have eased from around 40% to a 10% chance after US inflation pressures eased and retail sales were moderate. One Fed hike is expected this year. With gasoline prices falling by almost 10%, headline inflation declined by 0.4% in June, slowing the annual rate from 4.2% to 3.5%. The core rate also softened from 2.8% to 2.6%yr on a flat month-on-month figure. This was subsequently backed up producer prices also falling in June (-0.3%) and rising less than expected after excluding food and energy (0.2%). Retail sales rose 0.2%m/m in June, well down from May's 0.9% gain, though lower gasoline prices were the main driver. However, control group sales - a gauge that remove gasoline and other volatile items - also slowed to 0.5%m/m from 0.8% in May. 

Re-escalating hostilities in the Gulf and renewed pressure on oil prices have come at a time where energy inventories in Europe are causing some concern. While the ECB is expected to hold steady at next week's meeting, this backdrop keeps the chance of further tightening in play. The ECB have strongly pushed back on views that the hike last month was an insurance hike, while the June forecasts also incorporated at least two rate hikes. In the UK, BoE Governor Bailey said that the fragile situation in the Gulf presented risks to the UK outlook. Meanwhile, Gilts responded favourably to reports that PM in waiting Burnham may appoint a more fiscally conservative Chancellor.

Macro (Re)View (10/7) | Hostilities renew

Hostilities in the Gulf flared up again this week with President Trump declaring the ceasefire was over. But with talks continuing, markets have been unbothered for now by a sharp reduction in shipping flows through the Strait of Hormuz. Brent crude oil touched midweek highs above $80 before closing around $75 on Friday, up more than 4% over the week. With the situation fragile, inflation risks persist. That was reflected in further increases in US Treasury yields, driven also by the FOMC meeting minutes noting 'almost all' participants saw rate hikes as necessary unless inflation pressures ease. The RBNZ reached that point this week, hiking by 25bps and indicated rates may rise further. 

Last week's soft US employment report (nonfarm payrolls +57k, unemployment rate 4.2%) left little lasting damage to Fed rates pricing for a rate hike by year-end, in part due to this week's hostilities in the Gulf pushing up oil prices. The minutes from the FOMC's meeting last month reaffirmed that the Fed under new Chair Warsh will at least sound less tolerant to above-target inflation. 

In Europe, the account of the ECB's June meeting where it increased rates by 25bps cast the move as a necessary step, pushing back against the notion of it being an insurance hike. That was backed up by President Lagarde's latest comments, saying that there were signs of second-round effects from the oil price shock flowing through the economy. Over in the UK, the BoE published its semiannual Financial Stability Report, highlighting the resilience of markets to the Gulf conflict; however, AI-related risks and vulnerabilities in parts of the market, including private credit, had increased. Responding to recent speculation, Governor Bailey said there would be no change to current bank leverage rules around government bond holdings. 

On the domestic front, a speech from the RBA's lead economist Sarah Hunter outlined the policy trade-offs facing the central bank. Hiking into the current supply-related shock is a communications challenge as much as anything, given that risks to growth and the labour market appear to be weighted to the downside. Hunter said these considerations need to be weighed up but appeared to argue that because underlying inflation was already elevated it had less scope to be patient.

Australia trade balance back in deficit in May

Australia recorded its largest trade deficit since December 2015 in May, its second deficit of the past 3 months. The trade deficit was $3bn in May, swinging from a $1.4bn surplus in April, with both exports (-6.9%) and imports (2.6%) contributing to the deterioration. The effects of the Gulf conflict, the data centre build out and volatility in gold exports are all playing a role. Nonetheless, the Australian dollar on a trade weighted basis is up more than 4% year to date.  

The trade account was in deficit by $3bn in May as import spending ($46.6bn) exceeded export earnings ($43.6bn). Australia ran trade surpluses every month from the start of 2018 through to February this year. But this result for May was the second deficit of the past 3 months, though the shift has lacked a defining driver. 

The $1.7bn deficit in March came as imports surged (12.9%) to facilitate the data centre build out and due to the fuel price shock from the Gulf conflict. However, the deficit for May was driven by a slump in exports (-6.9%). Even incorporating the rebound to a surplus in April ($1.4bn), the 3-month average for the trade balance was in deficit (-$1.1bn) for the first time since October 2016. 

Exports largely reversed their April rebound (7.2%) with a 6.9% fall in May, coming to $43.6bn - still up by 4.6% over the year. Non-monetary gold was a key factor, with those exports falling by 35% from the prior month. Meanwhile, non-rural goods declined (2.9%) on the back of weakness in iron ore (-9%). 

Spending on imports was up 2.6% to $46.6bn all told in May. That elevates imports to new record highs, having risen by almost 17% over the year. Capital goods rose sharply in the month (8.2%) but are off their recent peak in March when data centre investment went to new levels. A near 8% rise came through in consumption goods, boosted by a surge in new vehicle purchases (24.6%).    

Intermediate goods have gone on a tear following the surge in oil prices stemming from the blockade in the Strait of Hormuz, rising 9.5% in March and 13.8% in April. But that slowed in May to a largely level movement (0.3%). Fuel imports in May were $8.6bn, more than double their pre-conflict level in February ($4bn).  

Australian dwelling approvals fall 1.1% in May

Australian dwelling approvals for May fell by 1.1%, their fifth decline in the past 6 months as high-rise unit approvals have scaled back. By contrast, house approvals (3%m/m) brought strong momentum into the RBA's tightening cycle, reaching their highest level since the stimulus-driven surge coming out of the pandemic in late 2021. Meanwhile, data centres continued to see non-residential approvals soar. 

Residential approvals were down 1.1% month-on-month in May to 17k, a downside result on expectations (0%) but still up by 5.3% over the year. This saw the 3-month average (17.2k) ease back slightly, though approvals are still up sharply from cycle lows seen a couple of years ago.   

Approvals continued to diverge across segments. Unit approvals fell a further 7.3% to 6.3k (-5.9%yr); however, house approvals lifted 3% to their highest since September 2021 (10.7k) and are up by more than 13% over the year. The key question for the housing segment moving forward is the impact of the RBA's tightening cycle, with dwelling construction a highly interest-sensitive sector. The tax changes to housing around the treatment of capital gains and negative gearing in the recent federal budget shape as another key uncertainty. Housing prices are wavering on these effects; however, underlying demand for housing due to population growth over recent years remains strong.   

In the non-residential segment, data centres continued to dominate. Work approved increased 41% on the back of a 22.9% gain in May, surging to record highs at almost $11bn in the month, up around 65% on a year ago. Much of the activity in data centres is concentrated in New South Wales and Victoria.  

Macro (Re)View (26/6) | USD continues resurgence

A tech-led sell-off due to ongoing valuation concerns in the mega-cap sector weighed on global equities and by extension risk sentiment more broadly this week. In the FX, that backdrop hit cyclical currencies the hardest, with the euro and Australian dollar seeing the largest falls against an in-form US dollar - the DXY index sitting at its highest levels in more than a year, boosted by the recent hawkish Fed repricing. Meanwhile, safe-have demand saw bond markets rally, driving US 2-year and 10-year Treasury yields down by nearly 10bps over the week. In the UK, PM Starmer's resignation had little discernible impact on Sterling or UK assets.     

Strong Australian data was helpful for an RBA that elected to maintain its tightening bias at last week's meeting. However, markets remain unconvinced further tightening is required, leaving pricing for another hike this cycle largely unchanged at a one in three chance. The labour market added around 40k jobs in May, outperforming consensus (32.5k) but only rebounding from the seasonal fall in employment around Easter following downward revisions to April (-40.7k). Nonetheless, the unemployment rate fell back to 4.4%, partly reversing its rise to 4-year highs of 4.5% the month prior (see here). Meanwhile, job vacancies - despite falling 2.1% in the three months to May - remained at a little above 2% of the labour force, levels consistent with robust labour demand. 

Headline inflation fell 0.7% month-on-month in May, slowing the annual rate from 4.3% to 4%; however, that was mainly due to the ongoing effect of the excise tax cut on fuel prices (-11.9%). Core inflation, the RBA's main focus, firmed in May (0.4%) to lift further above the target band, up from 3.4% to 3.6%yr (see here). That is likely to reaffirm the RBA's view that the earlier cash rate hikes were justified and that it may yet tighten further. Household spending lifted 1.3% month-on-month in May, likely also contributing to that narrative (see here).

In the US, data confirmed inflation pressures are on the rise. The PCE deflator was up 0.4% month-on-month in May seeing the annual rate lift from 3.8% to 4.1%, a 3-year high. The core measure that the Fed sets policy to was in line with expectations at 0.3% month-on-month, firming from 3.3% to 3.4% year-on-year, significantly above the central bank's 2% target. Markets assign a 70-80% chance to the Fed hiking by year-end. The same report showed that that personal spending lifted above expectations with a 0.7% month-on-month rise, continuing to defy very weak sentiment.

Comments by ECB President Lagarde to the EU parliament were seen as broadly balanced, keeping the door open for further rate hikes while playing down the need for aggressive tightening. That stance acknowledges the uncertainty of the outlook as well as the risks to growth being weighted to the downside. By contrast, the ECB's Schnabel said that as things currently stand, more hikes would be needed.

Australian household spending up 1.3% in May

Australian household spending rose by 1.3% in May, defying headwinds from cost-of-living pressures, RBA rate hikes and weak sentiment. That was well above expectations for a 0.5% rise; however, spending was boosted by travel-related refunds as the effects of the Middle East conflict continued to impact the data. Meanwhile, the halving of the federal excise tax continued to drive petrol prices down.   

The household spending indicator rose by 1.3% in May, a continuation of the volatile profile in recent months following the conflict in the Middle East. This was after spending rose by 1.7% in March - driven by the fuel price shock - only to fall by 1.1% in April, weighed by refunds for travel due to mass flight cancellations in response to the conflict. In May, spending in all categories contributed to the headline increase, reflected in the chart below.     

Notably, discretionary spending performed to post its strongest rise (2.1%) in well over two years going back to January 2024. This included strength in clothing and footwear (2.7%), boosted by early end-of-financial-year sales, while hotels, cafes and restaurants (1.9%) lifted alongside major sporting and cultural events.  

  

Transport-related spending, currently the most volatile category, rose 1.4% in May. That was a rebound from the sizeable fall in April (-4.7%), due to travel refunds returning to more normal levels. The ABS's release noted that if airfares and refunds were removed, household spending would have only risen by 0.6% month-on-month. Meanwhile, the volume of fuel sales was estimated to have declined 0.4% month-on-month.  

Australian employment 40.3k in May; unemployment rate 4.4%

Australia's unemployment rate fell back to 4.4% in May, halfway to reversing its rise to 4-year highs of 4.5% in April. That was driven by a 40.3k increase in employment (vs 32.5k expected), which rebounded after falling during the Easter holiday period. But downward revisions showed a much larger fall in April (-40.7k) than was initially reported (-18.6k). In a separate release, job vacancies fell slightly for the 3 months ending May (-2.1%) but remained at levels consistent with robust labour demand. Alongside solid household spending data in May, RBA rates pricing was little changed, with markets leaving the door open for a further rate hike without being convinced one is required.        

Employment rose by a net 40.3k in May, a gain that was concentrated in the part time segment (35.2k) as full time employment lifted modestly (5.2k). This essentially confirms that the decline in employment in April was due to seasonal effects over the Easter holiday period. But today's report showed that decline was significantly larger than first reported by the ABS, revised to -40.7k from -18.6k previously, implying the weakest result since December 2023. Incorporating revisions, employment gains averaged just 6.4k over the past 3 months, a clear slowing in the momentum seen through the first quarter of the year. 

The headline unemployment rate printed at 4.4% in May, in line with expectations and falling back from 4.5% in April - its highest since late 2021. The unemployment rate avareged 4.2% through the first quarter of the year, another sign that labour market conditions have slowed. The more expansive underemployment rate (including those wanting more hours) was 5.9% in May, reversing a modest fall to 5.8% in April. Combined, total underutilisation stands at 10.2%, down from 10.3% in April but has trended higher since the end of last year. On the supply side, labour force participation was 66.7% in the month, rising from a downwardly revised 66.6% in April. Participation remains at historically elevated levels but is off cycle highs above 67%.  

The hours worked measure continues to show effects of seasonal volatility. Fewer people taking leave during the Easter holidays contributed to hours worked rising by 0.9% in April, despite the fall in employment. In May, that reversed as hours worked declined by 1.1% month-on-month to see annual growth slow from 3.2% to 0.5%. Both part time (-0.8%) and full time hours (-1.1%) declined in the month.  

Preview: Labour Force Survey — May

Australia's Labour Force Survey for May is out at 1130 AEDT today. This follows a very weak report for April where a near 19k fall in employment sent the unemployment rate to a 4-year high of 4.5%. Seasonal volatility around the Easter holiday period is widely thought to have been influential, driving expectations for a rebound in today's report. The RBA left rates on hold at last week's meeting, pausing its tightening cycle after three straight hikes. Governor Bullock expressed no immediate concern over the rise in the unemployment rate, but pricing for any further tightening this year has been wound back to a 1 in 3 chance.  

May preview: Rebound expected 

Expectations that the April report was heavily affected by seasonality around Easter has seen consensus fall on the side of forecasting a rebound in May. Employment is expected to rise by 30k (range: 15-45k), more than reversing the 18.6k decline in April. As the chart below shows, April was an outlier result on recent form given that employment was coming off four straight upside surprises. The unemployment rate is expected to tighten slightly by falling back to 4.4% from 4.5% currently (range: 4.3-4.6%).   

 

April recap: Unemployment rate reaches 4-year high 

The unemployment rate lifted to its highest since late 2021 at 4.5% as employment fell by almost 19k. These were significant downside surprises on the forecast outcomes for a 17.5k rise in employment and a steady unemployment rate at 4.3%. Seasonal volatility likely played a role as the survey period coincided with the Easter holidays, though that is yet to be confirmed.

April was the weakest month for employment since last November, with the 18.6k decline including falls in both the full time (-10.7k) and part time segments (-7.9k). That saw the unemployment rate rise from 4.3% to 4.5%, even as a decline in the participation rate (66.7%) reflected fewer people entering the labour force in April. 

Notwithstanding this, underemployment (including those wanting more hours) declined from 5.9% to 5.8% as hours worked posted a strong 0.8% month-on-month increase. Combining unemployment and underemployment, total underutilisation rose from 10.2% to 10.3%.