Hiring slowdown poses interest rate 'conundrum' for Reserve Bank of Australia

Job growth has collapsed to just half its previous rate as government hiring freezes, leaving the Reserve Bank facing a dilemma on interest rates.

Jobs growth is slowing, but inflation isn’t, giving RBA Governor Michele Bullock a tough job on interest rates.

Australia’s job boom has stalled, with a slowdown in government roles and persistent inflation a looming headache for the Reserve Bank of Australia ahead of their December decision on interest rates.

Job gains have more than halved in recent months and, for the first time since 2022, private employers are doing more hiring than the public sector, according to Deloitte Access Economics’ Employment Forecasts report.

The white-collar workforce experienced its slowest year of growth in a decade, increasing by just 0.8 per cent in 2024-25 as large companies “right-sized” their workforces.

“Even with 42,200 people gaining work in the month of October 2025, job gains for the last six months have totalled just 81,500 workers,” said Deloitte Access Economics Partner and report lead author, David Rumbens.

“This compares to 151,300 people finding work in the six months prior.

Fewer jobs are around, but people are still spending. Picture: John Appleyard

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“This is a concerning trend and shows just how steep the slowdown in hiring has been for the labour market. When measured in annualised terms, employment growth in the six months to October 2025 was just 1.1 per cent, well below the annualised rate of 2.1 per cent in the six months prior.”

Mr Rumbens said while the shrinkage in government job spend was “an ongoing risk to the labour market” it was likely only temporary.

“However, the current labour market flat patch poses a conundrum for the RBA, which now faces the challenge of maintaining full employment and keeping the inflation rate within the 2-3 per cent sustainable band.”

David Rumbens from Deloitte Access Economics.

Mortgage holders’ hopes of a Melbourne Cup-day cut were scratched earlier this month, with the Reserve Bank leaving the cash rate unchanged at 3.6 per cent.

The hold was widely expected in the wake of last week’s shock inflation rate, which crushed hopes there would be a Cup Day cut.

Some experts have predicted rates could even increase in the coming months, however, the sluggish job figures could provide some hope for mortgage holders.

Post-Covid hiring in the public sectors of health care, education and public administration drove more than 80 per cent of employment growth in 2023 and 2024 – a situation which has now reversed.

Human services jobs are expected to grow by 2.9 per cent in 2025-26, adding 157,000 workers.

RBA Governor Michele Bullock during a press conference following the decision to keep interest rates on hold at 3.6 per cent. Picture: Nikki Short

The white-collar workforce is forecast to grow by a sluggish 0.9 per cent, while the blue-collar workforce is predicted to shrink by 0.3 per cent, a loss of 12,800 workers.

Despite challenging conditions across the broader labour market, employment growth across Australia’s CBDs is expected to pick up in the year ahead.

This recovery is anticipated to be underpinned by stronger consumer spending, higher credit demand and improving business profitability.

“Brisbane Near City is expected to experience the strongest employment growth across all CBD markets in 2025-26, with strong growth forecast across the health and education industries,” Mr Rumbens said.

“Meanwhile, employment growth in Melbourne CBD is expected to outpace the national average over the coming financial year, supported by a rebound in financial services hiring and improving consumer spending.”