A softening jobs market "should flash a warning sign" at the Reserve Bank against hiking interest rates, as crucial unemployment and inflation data heave into view on the horizon.
AMP chief economist Shane Oliver forecasts labour force data released by the Australian Bureau of Statistics on Thursday will show the unemployment rate rose from 4.3 per cent to 4.5 per cent in December.
That's despite a predicted 30,000 new jobs being added to the economy.
The positive effect on unemployment would likely be outweighed by a bounce-back in the volatile participation rate, which the month prior fell from 66.9 per cent to 66.7 per cent, he said.
"If the unemployment rate shows a lift, employment growth shows a bit of a bounce, but the trend is still towards one of softening, that should flash a warning sign to the RBA that they need to be cautious here in raising rates," Dr Oliver told AAP.
Expectations for a rate hike have climbed in recent months since a resurgence in inflation.
Money markets have fully priced in a 25 basis point increase by August, with traders implying a 25 per cent chance of a hike on February 3.
RBA governor Michele Bullock has said the last board meeting in December believed the labour market remained a bit tight.
But job vacancy rates were trending lower and employment growth had been softening, indicating the jobs market was not strong, HSBC chief economist Paul Bloxham said.
A February rate hike would "not be pretty", he said.
"A lack of supply-side reform has meant productivity growth has stalled in recent years and strong growth in public spending has been crowding out private sector activity," he said.
"It would also raise the question as to whether the RBA had cut rates a bit too far in 2025."
The Paris-based Organisation for Economic Co-operation and Development was more optimistic in its economic survey of Australia, released on Thursday morning, AEDT.
The RBA had succeeded in achieving a "soft landing" in regards to keeping unemployment low, economists at the OECD said.
With the labour market softening and inflation projected to return to target over the coming quarters, interest rates could be "eased modestly further in 2026", the report said.
Treasurer Jim Chalmers said the report highlighted Australia's economic recovery.
"The OECD has confirmed that the Albanese government has been able to achieve a 'soft landing' in Australia’s economy in the face of substantial global volatility by getting inflation down while avoiding a recession and keeping unemployment low," he said.
