Australia’s unemployment rate has climbed to 4.5%, with employment falling by 16,000 people during July and the number of unemployed Australians rising to around 691,500. Underemployment also increased slightly, suggesting more Australians are either out of work or unable to secure the hours they need.
This creates an uncomfortable problem for the Reserve Bank. Inflation remains too high and the RBA has already raised rates three times this year, but higher rates deliberately slow borrowing, spending and business activity. When unemployment is rising at the same time, another rate increase risks placing even more pressure on an economy that is already struggling to grow.
Businesses are showing that pressure clearly. The attached ASIC chart shows company insolvencies climbing sharply from the unusually low levels recorded during the pandemic, when government assistance and temporary protections kept many businesses afloat. In 2024/25, 14,722 companies entered external administration, the highest annual number recorded in ASIC’s available data. That eased slightly to approximately 14,152 during 2025/26, but remains at an extremely high level.
The small reduction may suggest Australia reached peak insolvency during 2024/25. However, it is far too early to declare the worst over. Businesses are still dealing with high borrowing costs, expensive wages, rent, energy and insurance, while weaker household spending makes it increasingly difficult to pass those costs onto customers. The ATO has also returned to collecting debts that accumulated during and after the pandemic.
This leaves the RBA caught between two very different problems. Inflation may justify keeping rates high, but unemployment and company failures suggest Australian households and businesses need cheaper access to debt. Increasing rates further may help control prices, but it could also push more employers into cutting staff or closing altogether.
Gold has continued its recovery through this uncertainty, reaching approximately A$6,428 at the time of writing. For Australian investors, gold is benefiting from more than international demand. Concerns about the local economy, stubborn inflation and the direction of Australian interest rates are also strengthening its appeal as an asset held outside the banking and business system.
Interest rates affect far more than home loans. When rates rise, businesses pay more to finance equipment, stock, vehicles and everyday operations. Households also have less money available after paying their mortgages, which means they generally spend less with Australian businesses.
This weaker spending can help lower inflation, which is exactly what the RBA is trying to achieve. However, if rates remain too high for too long, businesses may reduce staff, delay investment or close completely. Rising unemployment is therefore an important warning that higher rates are already having an effect. The difficult part is timing.
Inflation usually responds slowly to interest-rate changes, meaning the RBA can continue tightening even while damage is beginning to appear elsewhere. With unemployment at 4.5% and company insolvencies remaining near record levels, the argument for another rate rise is becoming much harder to make.
