"With the right policy choices, there remains a rare opportunity to sustain the economy closer to full employment closer than has been the case for many decades," Treasury Secretary Steven Kennedy told a parliamentary committee on Wednesday.
He said such an outcome would be "life-changing" for many disadvantaged Australians.
While now softening a little, the jobs market has held up remarkably well even as interest rates moved higher.
A fresh batch of labour force data, due from the Australian Bureau of Statistics on Thursday, is tipped to exhibit ongoing strength given job ad numbers - an indicator of underlying labour demand - have been on the improve.
Dr Kennedy said "no evidence" of a wage price spiral bolstered his confidence that the unemployment rate could be maintained at a lower level than he previously thought sustainable.
No evidence of changing inflation expectations added to the case that the jobless rate could stay structurally lower than it used to.
The Reserve Bank of Australia has also been focused on keeping as many of the gains in employment as possible and says that's why it's tolerating a slower path down for inflation than many other central banks.
Dr Kennedy also said global inflation was continuing to ease but the speed of moderation was slowing.
"This is not unexpected," he said.
Inflation data from the United States came in slightly above expectations in January despite the headline figure heading in the right direction.
A hearing was told broad inflation drivers are normalising and now being led by services categories. (Flavio Brancaleone/AAP PHOTOS)
Dr Kennedy said many economies had transitioned to services-led inflation, which generally took longer to rise and longer to fall than goods prices.
Australia was also moving into a services-led scenario, suggesting the final stretch to bring down inflation will be prolonged.
Weakening economic conditions - a consequence of the fight against high inflation - are showing up in higher insolvency rates.
Credit analysis firm Equifax recorded a 44 per cent increase in business insolvency rates in the December quarter 2023 compared to the same period in 2022.
The result represented a five-year high and surpassed pre-pandemic volumes.
Equifax general manager commercial and property service Scott Mason said challenging market conditions seen throughout 2023 were responsible.
"This trend continued through to the end of the year, with December having the highest monthly insolvency volumes in the past five years," Mr Mason said.
National Australia Bank's monthly business survey, released on Tuesday, also revealed an economy losing steam.
The business conditions gauge broke a two-year streak of above-average conditions in January, with confidence picking up a little over the month but remaining well below the long-run average.
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