SYDNEY (Reuters) - Australia's central bank on Tuesday cautioned that any pick up in wage growth was likely to be slow and protracted, weighing on household incomes and spending power amid high levels of debt.
Reserve Bank of Australia (RBA) Assistant Governor Luci Ellis said policy makers were a little more confident that wages and inflation would eventually turn higher.
However, Australia still had more spare capacity than other developed countries, meaning it would take longer for wages and inflation to accelerate, Ellis told an economics conference.
"Our forecasts are for wage growth to pick up from here, but not immediately and then only gradually," said Ellis.
The central bank last week forecast underlying inflation would not reach the floor of its 2-3 percent target band until mid-2019, and only quicken to 2.2 percent by the middle of 2020.
That benign outlook reinforced market expectations that any rise in interest rates was also distant, with a first hike not fully priced in until early next year.
Ellis said liaison with firms found many were reluctant to raise prices in the face of fierce competition, so were also reluctant to grant larger wage rises.
Instead many were using other perks to attract and retain staff, including hiring bonuses, extra hours and improved workplace conditions.
The effect was so broad that growth in household incomes in Australia had been much weaker than in many other developed nations.
"If households start to see this weakness in income growth as permanent, they are likely to change their spending patterns in response," said Ellis.
There were already signs consumers were spending less on discretionary items, like travel and eating out. This trend was a particular risk given very high levels of consumer debt, added Ellis.
"Indebtedness households carrying the most debt might feel they have to rein in their spending quite a bit."
(Reporting by Wayne Cole; Editing by Sandra Maler and Tom Brown)
