The jobless rate jumped to 4.5 per cent in September to nearly four-year highs, blowing away economists' forecasts of a steady 4.3 per cent and prompting fresh questions about the tightness of the labour market.
After a surprise uptick in partial inflation figures in August, the Reserve Bank is between rock and a hard place as its dual mandate - price stability and full employment - pulls it in opposite directions, Oxford Economics head of research Harry Murphy Cruise said.
"Inflation looks set to come in hotter than the Bank's latest forecasts, while the labour market is weaker than expected," he said.
"Each development warrant different policy responses."
The RBA had expected some cooling in September's jobs data but neither the central bank, nor scores of analysts and economists, had tipped anything near the 4.5 per cent jobless figure.
While narrowing bets on further interest rate cuts helped Australia's stock market soar to record highs on Thursday, analysts noted monthly unemployment prints were often revised, and partial CPI data didn't hold the same weight as the quarterly figure, due at the end of October.
Despite the lift in rate cut expectations, most local banks and global investment giants still tip the Reserve Bank will hold the cash rate steady at 3.6 per cent on November 4.
"Until the tension between inflation and labour market is resolved, we expect the RBA to remain cautious and watchful of the data flow," Commonwealth Bank's head of Australian economics Belinda Allen said.
"September quarter inflation should show no further progress on trimmed mean inflation in the quarter and makes it hard to see the cash rate lowered at the 4 November meeting."
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