The December figure was a marginal rise on the seasonally adjusted 3.9% unemployment rate the previous month.
Although employment increased a stronger-than-expected 56,300 in December (up from 35,600 in November), the participation rate also increased in seasonally adjusted terms, effectively meaning there were more unemployed people looking for work.
The higher unemployment figure was enough for some analysts to raise the odds of an imminent cash rate cut, as early as the Reserve Bank’s first board meeting of the year on 17-18 February.
A robust jobs market has been one factor defying the case for a cut to the cash rate, even with disinflation for most of 2024.
Thursday's jobs data shows the employment market remains strong despite the statistical uptick in the unemployment rate.
Markets are now looking to the all-important final piece of the puzzle – the December quarter CPI inflation data due out on 29 January.
How will inflation data cut the cash rate?
The RBA will be looking at whether the quarterly trimmed mean number, which measures underlying inflation in the economy, has fallen to a level that meets the board’s benchmark for a cash rate cut.
Last week, ANZ Bank brought forward its forecast of a cash rate cut to February on the back of expectations that inflation for the quarter will be weaker than the board’s prediction.
ANZ economists expect the trimmed mean number for the December quarter to come in at 0.5%, the lowest quarterly result since the second quarter of 2021.
This would see the annual rate drop to 3.2% - below the RBA’s current forecast of 3.4%.
ANZ analysts believe this “will be enough” for the RBA to cut the cash rate by 25 basis points at its February meeting.
The bank now joins Commonwealth Bank of Australia in calling a February rate cut while their big four peers, NAB and Westpac, are still tipping a 25-basis point cut at the RBA’s May meeting.
How likely is a February cash rate cut?
Another piece of data supporting the case for a February rate cut is last month’s drop in household spending.
CommBank’s Household Spending Index fell by 1.8% in December, driven by a sharp plunge in spending on household goods after strong results following the Black Friday sales in November.
Despite the festive season, spending was down in hospitality (-2.6%), food and beverage (-2%), and recreation (-2%).
CBA economists said it was yet another indicator to support their view the RBA will begin to lower interest rates at their first meeting of the year.
Financial markets are currently pricing in a 73% chance of a cut to the cash rate from 4.35% to 4.10% in February.
The major bank camps are divided, however, with NAB and Westpac economists forecasting a rate cut closer to mid-year.
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