About 56,000 jobs were added to the economy in December, the Australian Bureau of Statistics reported on Thursday, above market expectations of 20,000 new jobs.

The unemployment rate ticked up from 3.9 per cent to four per cent, as expected by analysts.

Growth in the number of employed people was higher than the monthly average of 0.3 per cent during 2024, the bureau’s head of labour statistics Bjorn Jarvis said.

The participation rate rose to a record high of 67.1 per cent as the number of unemployed people climbed by more than 10,000.

“The rise in both the number of people employed and unemployed also saw a further rise in the participation rate, that is the percentage of the population who are employed or unemployed,” Mr Jarvis said.

With the strong growth in people seeking work, the data reiterated the tightness of the labour market, BDO Economics partner Anders Magnusson said.

The underemployment rate also fell 0.1 percentage points to 6.0 per cent, indicating fewer employed people seeking extra work.

The rise in unemployment comes after a surprise drop from 4.1 per cent in November.

The seasonally adjusted rate had been steadily rising from its nadir of 3.4 per cent in October 2022.

The central bank’s governor Michele Bullock has cited ongoing strength in the labour market as a reason for the central bank holding the cash rate at 4.35 per cent.

The unemployment rate has held well below the bank’s 4.3 per cent forecast for the fourth quarter.

Mr Magnusson said labour market trends such as rising union membership and real wages growth indicated employees were enjoying increased bargaining power.

A welcome trend for workers – but something to be considered by the bank in wage and inflation forecasts.

“Today’s jobs release doesn’t change the inflation story,” he said.

“The critical data point for the RBA will come at the end of this month through the quarterly CPI release.”

Economists at ANZ and Commonwealth Bank still expect the RBA to cut interest rates by 25 basis points at its next meeting in February, due mainly to an unexpected slowdown in inflation.

While a strengthening labour market has made the central bank reluctant to cut rates, CBA chief economist Stephen Halmarick said low unemployment was not as critical a factor as it was made out to be.

He believes the non-accelerating inflation rate of unemployment (NAIRU) – the lowest joblessness rate that can be sustained without causing inflation to rise – is lower than the bank’s estimates.

“And the supporting argument for that is, well, the unemployment rate has been around 4.0 per cent for the last year or so, and the rate of inflation is decelerating and the rate of wages growth is decelerating,” he told AAP.

“So that tells you the NAIRU has got to be close to where the current unemployment rate has been and not as high as four and a half, which is the RBA forecast.”

Bonds traders predicted an almost three-quarter chance of a February rate cut ahead of the bureau’s employment data release.