Amid ongoing strength in the Aussie labour market, should ASX investors brace for further interest rate hikes from the Reserve Bank of Australia?
According to Commonwealth Bank of Australia (ASX: CBA) senior economist Ashwin Clarke, that wouldn't be a bad idea.
Yesterday, the Australian Bureau of Statistics (ABS) released the latest jobs data. With the number of workers increasing by 17,800 in January, unemployment stayed steady at 4.1%.
However, CBA noted that the trend unemployment rate, which takes out month‑to‑month "noise" to show the underlying direction, declined to 4.1% in January from 4.2% in December.
Following on strong jobs data in December, CBA said the January figures point "to a labour market that remains slightly tighter than the Reserve Bank of Australia (RBA) would prefer".
As you're likely aware, earlier this month the RBA lifted interest rates for the first time since November 2023, boosting the official cash rate to the current 3.85%.
"The board has been closely monitoring the economy and judges that some of the increase in inflation reflects greater capacity pressures," the RBA said at the time.
And the RBA is keeping a close eye on those unemployment figures. "Various indicators suggest that labour market conditions remain a little tight," the board said in making its 3 February decision to boost interest rates.
A tighter labour market puts upwards pressure on wages and adds fuel to the inflation fire.
Image source: Getty Images
What CBA now expects from interest rates
"While the monthly gains in employment look modest, the underlying trend shows the labour market remains a little too tight to bring inflation back to the RBA's target midpoint," Clarke said.
The RBA has a mandate to keep inflation with the range of 2% to 3%.
CBA noted that trend employment increased by 24,700 in January, and the trend underemployment rate held steady at 5.9%, close to its lowest level in three decades.
The bank added, "The continued strength in hiring suggests monetary policy may still need to do more work to contain inflation."
As for what ASX investors should expect from RBA interest rates, Clarke said:
The December print highlighted the risk that the labour market was strengthening at the end of 2025, and [Thursday's] data confirms that this was the case with a gradual strengthening continuing in early 2026. This strengthening likely reflects the lagged effects of momentum building in the real economy over 2025.
Importantly, this data was before interest rates were increased by 25bps in February, but this will likely be cold comfort for the RBA.
CBA expects the RBA will likely keep rates on hold at its next meeting in March.
As for the May meeting, Clarke said, "The release reinforces our expectation that rates will be increased by the RBA in May and that the risks sit for further rate increases from there."
Stay tuned!
