Unemployment rate reaches post-COVID era high of 4.6pc in August

The national unemployment rate hit 4.6 per cent in August, up from 4.5 per cent in July. (AAP: Sam Mooy)

The unemployment rate lifted to 4.6 per cent in August, up 0.1 percentage points from July.

Some economists say the increase in unemployment probably will not be enough to stop the Reserve Bank lifting interest rates.

The Reserve Bank's monetary policy board meets on September 28 and 29 to decide what to do with interest rates.

Australia's unemployment rate drifted higher in August.

The national unemployment rate rose to 4.6 per cent, up from 4.5 per cent in July, in seasonally adjusted and trend terms.

It is the highest unemployment rate in the post-COVID era.

On Tuesday, RBA governor Michele Bullock said she thought an unemployment rate of somewhere between 4.5 and 5 per cent would "take enough heat out of the labour market" to ease pressure on inflation.

In recent weeks, all four major banks and the bulk of money market traders have also announced that they expect the RBA to lift interest rates next week to try to clamp down on economic activity and squash inflation.

Oscar Guth, economist for Oxford Economics Australia, said the higher unemployment rate should ease "some of the tightness" in the labour market but he still thought the RBA would lift rates next week.

The ABS data show that Australia's labour force increased by another 67,700 people in August, which pushed the participation rate up to 67.1 per cent, from 66.9 per cent in July.

That returns the participation rate to just below its record high of 67.2 per cent.

The labour force increased by 67,700 people last month because an extra 39,500 people found employment and an extra 28,200 people were recorded as being officially unemployed.

The unemployment rate still increased, in that situation, because the growth in employment failed to keep pace with the influx of people into the labour force.

Earlier this year, a working paper published by the International Monetary Fund (IMF) found that the RBA's rapid rate hikes in the post-COVID era had seen the supply of labour increase in Australia, because many Australians in highly indebted households entered the workforce, or took on second or third jobs, to pay for their rising interest payments.

"This August we recorded a higher proportion of people who were previously not in the labour force moving to being unemployed, compared to recent years," Sean Crick, ABS head of labour statistics, said on Thursday.

David Bassanese, BetaShares chief economist, says the overall strength in employment will likely be "the final nail in the coffin" for the Reserve Bank to lift rates next week.

"For the RBA, the lift in unemployment will likely be regarded as unfortunate, but the price that needs to be paid to create more slack in the economy and lower domestic demand-driven inflation pressure," he said.

"My base case remains that the RBA will raise interest rates by 0.25 percentage points next week to 4.6 per cent, with an even-odds chance of a follow-up hike on Melbourne Cup Day in early November."

EY senior economist Paula Gadsby said the data would do little to alter the interest rate outlook.

"The key challenge for the Reserve Bank is inflation, which has been outside the 2 to 3 per cent target band for some time," she said.

"A labour market that continues to absorb workers and support household spending indicates domestic demand pressures have not softened sufficiently to reduce inflation risks.

"At the same time, supply shocks in global energy markets are becoming more persistent and harder for the Reserve Bank to 'look through'.

"Today's result is unlikely to materially change the policy outlook, with financial markets pricing a 90 per cent probability of a rate hike [next week]," she said.

Citi economists Faraz Syed and Josh Williamson say they still expect the RBA to lift rates next week and again in November.

However, the Australian Council of Social Service (ACOSS), the peak council for community services nationally, has called on the RBA to try to keep the unemployment rate as low as possible.

Cassandra Goldie, ACOSS chief executive, said Australia's comparably low unemployment rate was a considerable achievement of the post-COVID era and we should not take it for granted.

"It must be protected," she said on Thursday.

"There is no question that increasing unemployment towards 5 or 6 per cent would represent a human disaster, with long-lasting damaging impacts for people unnecessarily locked out of the labour market and forced to rely on grossly inadequate income support payments."

She reminded policymakers that Jobseeker was now worth just 40 per cent of the minimum wage.

"The RBA should resist rate rises that would trigger further loss of the post-pandemic labour market gains," she continued.

"The government must now take the lead in managing inflation, with an emphasis on ensuring that inflation is reduced fairly and that people on low incomes are protected."