By Lucinda Jerogin, Associate Economist at CBA
- The unemployment rate held steady at 4.2% in August.
- Australia’s population rose by 0.5% in Q1 25 to 27.5 million people. The annual growth rate eased to 1.6%.
- Offshore, the US Fed Reserve took centre stage cutting the funds rate by 25bp as was widely expected. The BoC followed suit. Elsewhere, the BoE kept rates on hold. The BoJ is next in line to meet this afternoon.
- The week ahead will see the release of the August Monthly CPI Indicator and Job Vacancies data in Australia.
- Abroad, Canadian GDP and US inflation data are due.
Domestically all eyes were on the labour market last week. The August Labour Force survey was a mixed bag but in totality printed on the soft side of consensus. Employment fell by 5.4k, well below market expectations for a 21k gain (CBA: +20k). The unemployment rate held steady at 4.2%, owing to a fall in the participation rate to 66.8%.
However, the series is notoriously volatile. In trend terms, employment growth sits at +18k and is rising. The unemployment rate ticked up to 4.3% and has risen steadily from 4.0% at the start of 2025, indicating a gradual loosening of the labour market is underway after stability through 2024.
Importantly, the unemployment rate is broadly tracking as the RBA had forecast. We continue to expect the RBA to cut the cash rate once more by 25bp in November.
In other economic data, Australia’s population rose by 1.6% over the year to Q1 25 to 27.5 million people. Population growth continues to normalise with easing in net overseas migration and soft natural increase growth. Net overseas migration was again impacted by Federal Government policy this quarter. As I explore in a recent note, enrolment caps have the potential to curb international student arrivals by more than intended, posing some headwind to the expected economic recovery.
Offshore the attention of financial markets was on central bank meetings. The US Federal Reserve took centre stage, cutting the funds rate by 25bp to 4.00%-4.25%, as was widely expected. However, in the post meeting press conference, Chair Powell characterised the move as a ‘risk management cut’, causing markets to pare back pricing for further rate reductions. Our international economics team expects two further 25bp cuts in 2025 followed by a final cut in March 2026.
North of the border, the Bank of Canada (BoC) followed suit, cutting rates to 2.5%. The policy rate now sits below the midpoint of the estimated neutral range. Our international economics team continue to expect the BoC to next cut in October.
Elsewhere, the Bank of England (BoE) kept rates on hold, maintaining its guidance that future interest rate cuts will be ‘gradual and careful’ and ‘depend on the extent to which underlying disinflationary pressures continue to ease’. Our international economics team expect the BoE will remain on hold before resuming cuts in February 2026.
The week ahead will see the release of the August Monthly CPI Indicator and Job Vacancies data in Australia.
We expect the monthly CPI indicator will ease to 2.7%/yr in August. The annual trimmed mean measure is forecast to fall to 2.5%, bang on the midpoint of the RBA’s target band. There is limited room for further disinflation in coming months in our view. Economic growth has picked up; the labour market remains solid and there is evidence from private sector surveys that this has translated to price pressures modestly rising in the September quarter.
Abroad, the economic calendar is lighter next week. Canadian GDP and US inflation data are due.
