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Lower wage growth to stay, RBA says

 

The Reserve Bank of Australia thinks many people are coming to terms with lower growth in their real wages, which is likely to have an impact on consumer spending behaviour.

Reserve Bank of Australia head Philip Lowe says there is an adjustment going on, with the underlying drivers of the slower wage growth in Australia much the same as the those prevailing overseas.

"Many now see this as more than just a temporary development, with wage increases of two-point something per cent now the norm," Dr Lowe told a parliamentary House economics committee hearing on Friday.

At the same time, consumers are also dealing with higher levels of debt relative to income, even as higher electricity prices affect household budgets.

"This all means that consumer spending behaviour is something we continue to watch carefully," he said.

Encouragingly, there had been a pick-up in employment growth recently, which should help boost incomes, Dr Lowe said.

RBA had held its cash rate steady at 1.5 per cent, which should support employment growth and a return of inflation to around its average rate of the past couple of decades, he said.

The central bank is prepared to be patient on rates as it seeks to strike a balance between the benefits to the economy of monetary stimulus and the risks associated with rising levels of debt.

"We have preferred a prudent approach, which is most likely to promote both macro-economic and financial stability consistent with the medium-term inflation target," Dr Lowe told the committee.

The Australian economy is chugging along as expected and remains on track to expand at around three per cent a year, the central bank said last week.