Australia’s labor market is showing signs it is softening faster than the central bank expected, Reserve Bank Assistant Governor Christopher Kent said, underscoring the tradeoff policymakers face as they seek to slow inflation while preserving gains in employment.

“There are indicators where the labor market has become less tight a bit faster than we might have forecast,” Kent said Monday. An important question is whether that is due to weakening demand or the rising costs of labor, he added.

Australian unemployment came in higher than expected in September, data last week showed. While that prompted traders to pare bets on the RBA further hiking interest rates, Kent cautioned that it was important to also watch inflation data due next week.

“Let’s see how they view also the inflation data, and it’s important to put those two pieces of the puzzle together. That’s what we’ll be doing when we update our forecast,” he said, referring to the economic outlook which will be released at the next policy board meeting in November.

His remarks come after the Reserve Bank hiked interest rates late last month, taking the cash rate to a 15-year high of 4.6% in an effort to contain stubbornly high inflation. Governor Michele Bullock’s comments after that decision were interpreted as somewhat dovish compared to the hawkish policy statement and minutes of the September meeting.

That gap “reflects the incremental approach and the RBA’s uncertainty around how severely the economy will respond to a fourth rate hike; not a lack of commitment to fight inflation,” according to Luke Yeaman, chief economist at Commonwealth Bank of Australia.

Deputy Governor Andrew Hauser is also due to speak this week, with his remarks to be scrutinized for clues on the interest-rate path. Investors and economists are also looking ahead to the quarterly inflation report due next week to assess whether the economy is gradually returning to balance or more hikes are needed.

As it stands now, traders anticipate the Reserve Bank will hike once more by May next year, according to swaps data compiled by Bloomberg. Still, a move at the end of the RBA’s Nov. 2-3 policy meeting is seen at about a one-in-four chance.

Speaking at a CBA event, Kent said the cash rate and its expected path over the next 18 months sit at the upper end of the RBA’s range of estimates for the neutral rate. “That tells you you can have some confidence that monetary policy is somewhat restrictive. But the question is, is it restrictive enough?” he said to the audience in Sydney.

Australia is undertaking one of the most aggressive tightening cycles among developed economies this year, with the RBA raising the cash rate by 1 percentage point and signaling further increases may be required. The nation has been grappling with resurgent price pressures since late 2025 and began raising the cash rate even before the US-Israeli attack on Iran triggered a global energy shock.

Kent, who oversees financial markets at the central bank, said the Middle East conflict is the most notable adverse supply shock facing the RBA, “and that makes the trade-off between inflation and economic activity and unemployment that much harder to deal with.”