May 21, 2026 — 12:21pmThere are signs the war against Iran, the surge in inflation and the Reserve Bank’s hikes to interest rates are starting to hit the jobs market.The Australian Bureau of Statistics reported on Thursday morning that the nation’s jobless rate lifted to 4.5 per cent from 4.3 per cent in April.It’s the highest unemployment rate since November 2021, when the country was dealing with the fallout from the COVID pandemic.Commuters heading to work during peak hour.Dominic LorrimerTotal employment fell by 18,600 in the month, with full-time jobs down by 10,700. There was also a 33,000 increase in the number of people out of work and looking for employment.Unemployment lifted in all states and territories bar Victoria and Western Australia. The jobless rate is highest in Tasmania, at 5 per cent.The biggest hit to the jobs market was in NSW where the state shed 44,000 jobs last month, pushing its jobless rate to 4.5 per cent, its highest level since late 2021.Annual jobs growth tumbled from 258,000 in the 12 months to March to 129,000 in the year to April.The bureau’s head of labour statistics, Sean Crick, said there had been an increase of 11,000 people looking for full-time work and a 22,000 jump in those searching for part-time employment.“Compared to what we usually see in April, more people remained unemployed this month,” Crick said.Despite the drop in employment, total hours worked increased by 15.8 million hours through the month.At 4.5 per cent, the jobless rate is slightly above what both the Reserve Bank and the federal Treasury had been expecting.The numbers had an immediate impact on financial markets as investors wound back expectations the Reserve Bank – which lifted interest rates at its past three meetings – would follow through with another hike in June.Ahead of the data, markets put the chance of a rate increase next month at just 22 per cent. Immediately after the figures, markets put the chance at 9 per cent.The Australian dollar lost almost 0.4 per cent against the US dollar in the 25 minutes after the jobless rate was made public, while the ASX200 lifted.Oxford Economics Australia economist Harry McAuley said the jobless rate was likely to climb to 4.8 per cent by late next year.“Firms’ hiring decisions tend to lag economic shocks – this would be a lightning-fast response if it is purely a reaction to the ongoing US-Iran crisis. It more likely reflects pre-war economic sentiment, compounded by the expected impacts of the oil crisis,” he said.“We expect the unemployment rate to peak at 4.8 per cent in late 2027. A slowdown in private consumption and a tougher business environment should slow hiring. Business confidence has cratered under higher inputs and borrowing costs, which will flow through their hiring decisions.”Capital Economics’ senior economist Abhijit Surya said the chance of a rate rise next month was effectively zero.“The strong pickup in Australia’s jobless rate in April makes it all but certain that the Reserve Bank will leave rates on hold at 4.35 per cent at its June meeting,” he said.The data came after S&P Global’s measure of manufacturing activity in Australia showed a sharp drop this month. New orders fell at their fastest pace since September 2021 while employment was down for the first time since the end of 2004.Business sentiment was at its lowest level on record with firms worried about inflationary pressures.“These preliminary data provide insight into the health of the Australian private sector as we move into the third month since the outbreak of war in the Middle East,” S&P Global Market Intelligence economist Eleanor Dennison said.“Although firms continued to report significantly elevated price pressures often linked to raisedenergy costs and its knock-effects, the rate of inflation softened from April.“Overall, the demand environment deteriorated further, as signalled by a faster and solid reduction in orders, which led to a fresh fall in output and encouraged firms back into retrenchment mode when it came to workforce numbers.”Get across all our coverage Winners and losers: This is who benefits from the budget, and who misses out Tax changes: Negative gearing, CGT, family trusts and how this will affect the property marketGenerational divide: Baby Boomers, Gen X, Millennials and Gen Z, this is what the budget means for youListen: Jacqueline Maley and Paul Sakkal on Angus Taylor’s immigration planCut through the noise of federal politics with news, views and expert analysis. Subscribers can sign up to our weekly Inside Politics newsletter.Shane Wright is a senior economics correspondent for The Sydney Morning Herald and The Age.Connect via X or email.From our partners