By Jacob Shteyman in Canberra

The Reserve Bank of Australia believes unemployment is still too low despite inflation and wages growth falling in recent months.

Yet some economists argue that proves the central bank’s assumptions are wrong.

Unemployment for the month of December edged up to four per cent, the Australian Bureau of Statistics reported on Thursday.

That paints a picture of a resilient labour market, with the jobless rate still far below the RBA’s implied 4.5 per cent estimate for the non‑accelerating inflation rate of unemployment (NAIRU).

The NAIRU represents “full employment” or essentially, the lowest possible unemployment rate that does not lead to wages growth accelerating and inflation rising.

Commonwealth Bank economist Gareth Aird said recent labour market data, coupled with a decline in wages growth, supports the view that the NAIRU is actually likely to be around the current rate of four per cent.

“Australia should be able to run an unemployment rate of about four per cent and see inflation within the target band sustainably,” he said.

“But we don’t know if the RBA shares our view (or is coming around to our view).”

The Reserve Bank has refrained from lowering interest rates, unlike counterparts in the US, New Zealand and elsewhere overseas, in part due to the relative strength of Australia’s job market.

Nevertheless, core inflation has been tracking inexorably lower towards the central bank’s target range of 2-3 per cent.

CBA forecasts the December quarter trimmed mean consumer price index to once again come in below expectations, which “should see the RBA start to shift its thinking on the NAIRU”, Mr Aird said.

Other economists including JP Morgan’s Ben Jarman, AMP’s Shane Oliver and ANZ’s Jeff Borland also believe the NAIRU is lower than the RBA’s estimates.

Treasurer Jim Chalmers acknowledged that the definition of full employment in Australia’s economy was a contested figure.

“But if you look at the data and you look at what has been delivered in our economy, we see that we’ve had unemployment in the high threes and in the low fours for some time now, at the same time as inflation has come from its peak, almost eight per cent, down to within the Reserve Bank’s target band,” he told reporters.

“What that tells us is that we can make this very substantial, very sustained progress on inflation at the same time as we maintain very low unemployment.”

Mr Jarman argued that should give the RBA the freedom to cut rates at its next board meeting in February.

“With NAIRU probably in the low fours and inflation tracking back inside the band, the RBA’s forward-looking approach should see it comfortable to start a relatively shallow, measured easing cycle, to lock-in some gains in the labour market,” he said.