Scott Morrison expects the unemployment rate will fall below four per cent this year as he tries to gee-up voters ahead of a federal election in coming months.
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The unemployment rate fell to 13-year low of 4.2 per cent in December.
"I believe we can now achieve an unemployment rate with a 'three' in front of it this year," the prime minister told the National Press Club in Canberra on Tuesday.
"Our goal is to achieve this in the second half of 2022. We have not seen this in Australia for almost half a century."
Reserve Bank of Australia governor Philip Lowe has a similar view for the jobless rate and expects it to be around 3.75 per cent by the end of 2023.
However, rising inflation pressures and the falling unemployment rate have not deterred Dr Lowe from being "patient" when it comes to raising the cash rate.
The central bank left the cash rate at a record low 0.1 per cent at its first board meeting of the year, as widely expected.
"The board is committed to maintaining highly supportive monetary conditions to achieve its objectives of a return to full employment in Australia and inflation consistent with the target," Dr Lowe said in a statement on Tuesday.
Financial markets, which have been pricing in the risk of a rate rise by mid-year, had been expecting a more definite outlook for the cash rate.
Dr Lowe will get the chance to flesh out his thoughts when he addresses the National Press Club in Sydney on Wednesday.
"The lack of clarity on forward guidance in this statement leaves plenty of opportunity for Governor Lowe to fill in the gaps," Deutsche Bank chief economist for Australia Phil O'Donoghue said.
But he said there was nothing in the statement to dissuade him from expecting a rate rise in August, at which point the RBA will have two more quarterly inflation reports under its belt.
Meanwhile, retail spending tumbled 4.4 per cent in December after several months of exceptionally strong results as the economy emerged from COVID-19 lockdown late last year.
The Australian Bureau of Statistics said December's monthly turnover of $31.9 billion was still the second highest level in the series following a record $33.4 billion in November.
But Australian Retailers Association CEO Paul Zahra said the outlook for retail trade in January and February is not so positive due to the impact of the Omicron variant.
"Foot traffic has slowed significantly and ongoing staffing shortages, supply chain delays and pricing increases are creating another dire set of trading conditions for retailers this year," Mr Zahra said.
Still, consumer confidence - a guide to future household spending - improved further in the past week as falling Omicron cases appeared to outweigh rising inflation pressures and the risk of an official interest rate hike this year.
The ANZ-Roy Morgan consumer confidence index rose 1.7 per cent to 101.8 in the past week, continuing its recovery from a slump to 97.9 in mid-January when infections were at their peak.
Meanwhile, manufacturing has been further hit by supply chain disruptions and staff shortages over the summer months, cutting short the improvement in the industry after last year's COVID-19 lockdowns.
Ai Group chief executive Innes Willox said cost pressures are also being felt across the sector, with input prices continuing to rise and selling prices only partially recovering these outlays.
The Australian Industry Group performance of manufacturing index dropped 6.4 points over December and January to 48.4, indicating a modest contraction in the sector with the index under 50 points.
Australian Associated Press
