Australia’s third interest rate rise in as many meetings is rippling quickly through the real economy, pushing businesses into costcutting mode and reshaping how and where Australians work
On 5 May, the Reserve Bank of Australia (RBA) lifted the cash rate target by 25 basis points to 4.35%, warning that inflation is likely to remain above its 2–3% target band for some time amid higher fuel prices and renewed capacity pressures in the economy.
While the RBA insists credit “is readily available to both households and businesses” and the labour market remains “somewhat tight”, business groups, unions and workforce platforms say the latest move will deepen financial strain, accelerate a shift to insecure work and heighten the risk of stagflation.
Deputy CFO Emma Seymour said what distinguishes this tightening cycle is not only the pressure it puts on shift workers, but how rapidly it is changing the structure of work itself.
“We’re seeing businesses be more cautious with their rostering, focusing on controlling risk rather than growth,” she said. “Instead of building schedules around demand forecasts, many are now purely controlling costs.”
Deputy data shows total hours and shifts are already down between 6 and 8% in early 2026, a sharp pullback that is eroding income security for workers in hospitality, retail, health and other shiftbased sectors.
“That loss of predictability is critical,” Seymour warned. “Shift workers who can’t rely on consistent hours have a much harder time budgeting for rent, transport, or even childcare.”
In response, many workers are restructuring their working lives entirely: taking on multiple roles, stacking shifts across different employers and prioritising flexibility over stability just to maintain a basic income.
“Looking forward, the biggest risk isn’t necessarily unemployment, but fragmentation of work,” said Seymour. “While more people are employed, it is across multiple roles, with less consistency and guaranteed hours. This has real implications for workers and businesses alike who are trying to build stable, experienced teams in shiftbased industries.”
Cost of living still climbing as incomes lag
The RBA’s decision reflects concern that inflation, which picked up materially in the second half of 2025, is being pushed higher again by the conflict in the Middle East and resulting spikes in fuel and related commodity prices. The central bank has updated its forecasts to incorporate a scenario where the conflict is resolved and fuel prices decline, but still expects underlying inflation to peak higher than previously thought.
In the meantime, the cost side of household budgets is proving stubborn. Seymour notedthat rent, fuel and energy “aren’t easing quickly, meaning workers are absorbing higher costs without a corresponding recovery in hours”. That is creating what she describes as “backlogged financial pressure” even if inflation starts to moderate.
The Australian Council of Trade Unions (ACTU) arguedthe RBA’s approach is punishing workers for price pressures they did not create. The central bank’s third consecutive hike will add around $110 a month to repayments on an average $736,000 mortgage, according to union estimates, at a time when many households are already stretched.
“Working people should not accept going backwards while energy companies, big banks and supermarkets are set to record megaprofits,” ACTU secretary Sally McManus said.
Citing research indicating corporate profits played a major role in the previous inflation surge, the ACTU warns that if businesses now pass on higher fuel and energy costs, workers will face “another round of rising prices” on top of higher housing and borrowing costs.
Awardreliant workers are particularly exposed: 46% are renters, compared with 34% of other working households, and as many as 40% are also paying off a mortgage. The ACTU is urging landlords not to pass the latest rate rise on to tenants.
“Nurses, teachers and tradies should not expect to be shock absorbers for overseas crises,” McManus said, arguing that higher interest rates “will not lower the cost of petrol and will not open the Strait of Hormuz”, but will materially hurt working families.
SMEs delay hiring and investment
For small and mediumsized enterprises (SMEs), the immediate effect of the RBA’s decision is higher borrowing costs and thinner margins.
Employment Heronotedthat the increase to 4.35% effectively unwinds the three rate cuts delivered last year, reinforcing the RBA's determination to corral inflation despite rising recession fears.
“Today’s rate hike will push Australian businesses further into a defensive footing,” said James Keene, managing director APAC at Employment Hero. “Our data is already seeing SMEs pull back on hiring and delay investment, as borrowing costs rise and consumer demand softens.”
The tightening is feeding directly into labour market dynamics. Keene saidcasual employment is growing at more than twice the rate of fulltime roles, up 9.2% yearonyear, as employers avoid longterm workforce commitments in an uncertain environment. Wage growth, meanwhile, has been flat for three consecutive months and shows “no signs of shifting”.
“These aren’t just numbers,” Keene added. “It’s businesses making increasingly difficult tradeoffs. Businesses need certainty to invest in their people, and right now, they’re not getting it.”
The RBA acknowledges that business and consumer confidence have both taken a hit amid global tensions and domestic costofliving pressures. While many firms report that topline revenue remains relatively robust, rising input costs are squeezing margins. Each business faces a stark choice: absorb those costs and trim hiring or hours, or pass them on and risk losing customers in a market where sentiment is at historic lows.
Employers warn of stagflation risk
The Australian Industry Group (Ai Group) says the latest decision has“sounded the alarm” on stagflation– the toxic combination of low growth and high inflation.
Chief executive Innes Willox pointedto the RBA’s updated forecasts, which show economic growth expected to slump to just 1.3% annually by the end of the year. Business investment and household consumption are both projected to fall, while inflation is tipped to surge to 4.8%by June and take at least another year to descend.
“Stagflation is no longer a risk to be avoided but a reality to be managed,” Willox explained, warning that without decisive action on budget night “household incomes will drop, business costs will rise and the economy will sink again.”
Ai Group argues that the burden of response cannot fall solely on monetary policy. It is calling for the federal budget to combine shortterm crisis relief with longterm structural reform, including durable support programs for industry and households, regulatory overhaul and tax changes that target productivity and growth rather than shortterm revenue grabs.
A tighter labour market – but more fragile jobs
Despite the gloomier growth outlook, the RBA stressedthat the labour market remains relatively tight.The unemployment rate was 4.3% in Marchand is forecast to end the year at the same level before gradually edging higher over the next few years.
Yet for many workers, the headline unemployment figure masks a more precarious reality. Hours are being cut, shifts are less predictable, and more people are cobbling together multiple jobs to make ends meet. Casual roles and gigstyle arrangements are expanding faster than secure, fulltime work.
Seymour’s warning about the “fragmentation of work” captures a growing concern among labour economists and business leaders alike: that Australia may be navigating not just a cyclical downturn, but a structural reshaping of employment.
For businesses, that raises its own risks. Building and retaining experienced teams becomes harder when staff are juggling several employers and can no longer count on stable rosters. For workers, budgeting and longterm planning become increasingly fraught.
RBA Governor Michele Bullock has described the current environment as “a very, very tough time”, but maintains that bringing inflation under control is essential to protecting real incomes over the medium term. The Board has signalled it will be “attentive to the data” and “do what it considers necessary” to meet its mandates of price stability and full employment.
With the next interest rate decision due in midJune and the federal budget looming, businesses and workers will be watching closely to see whether fiscal policy steps in to share more of the load – and whether the price of curbing inflation will be a weaker, more fragmented labour market.
