Australia's jobless rate fell to a fresh 33-year low of 4.2% in September, keeping alive speculation that interest rates would need to be raised again to cool the economy and restrain inflation.
Thursday's data from the government showed employers created a net 13,000 new jobs in September, pushing the unemployment rate down from 4.3 percent. The rise in employment was a little below market expectations of a 20,000 gain, but that followed a hefty and upwardly revised increase of 34,300 in August.
"Employment was a bit lower than expected but that's just modest payback for strength in the previous few months," said Su-Lin Ong, a senior economist at RBC Capital Markets.
Indeed, investors have got used to employment surprising on the high side, so the slight miss in September led to a dip in the Australian dollar and modest gains for bonds.
"But the key is that the unemployment rate fell to a new low -- that's the best indicator of the health of the labour market," argued Ong. "This outcome will keep the central bank wary and will only reinforce their tightening bias."
The Reserve Bank of Australia (RBA) raised interest rates to a decade high of 6.5% in August in an attempt to head off an acceleration in inflation.
Since then domestic data has been mostly upbeat with surprisingly rapid economic growth of 4.3% in the year to end-June, strong retail sales and brisk credit growth.
All eyes are now on the consumer price index for the third quarter, due on Oct. 24. Analysts fear a high outcome anywhere near the second quarter's 1.2% percent increase, could push the RBA into hiking again, perhaps as soon as November.
"This jobs report is one of a suite of numbers suggesting the economy remains very strong, that demand is high and the labour market is tight," said Rob Henderson, chief economist markets at nabCapital. "If we get a relatively high CPI result again, then a hike could be on."
The early omens for inflation are not good with a survey on Thursday showing Australian consumer inflation expectations soared to a two-year high of 4.6% in October.
Annual growth in the official consumer price index was just 2.1% in the second quarter.
"While inflationary expectations have been highly volatile of late, their renewed strengthening uptrend is clear, and reinforces our view of rising risks for actual inflation," said Anthony Thompson, a senior economist at Westpac.
Rising expectations of inflation can prove self-fulfilling if workers demand higher wage increases and firms strive to maintain profit margins by raising prices.
Up to now wages growth has been remarkably restrained at around 4% a year, short of the 4.5% speed limit that analysts consider a threat to inflation.
Yet signs of strain are evident with firms reporting an acute shortage of skilled labor, in part because the baby boomer generation was starting to retire in greater numbers.
Australia's largest online employment site, SEEK, on Thursday reported that the ratio of job ads to applicants jumped 4.6% in September to a three-year high.
"It seems as though the retirement of the baby boomers is possibly a far greater, lurking problem," said SEEK Sales Director Joe Powell.
"We are hearing about many professional groups, among them nurses, solicitors and teachers that are facing a mass exodus of talent due to retirement."