are around their highest level for many years and the long - awaited pick - up in non - mining business investment is taking place. there has been a large pick - up in infrastructure spending in some states. the number of australians with jobs has also grown strongly over the past year. the unemployment rate is lower than it was a year ago, although there has been little change for the past six months. growth in consumer spending has been solid, although it is lower than it was before the financial crisis. here in south australia, we heard how the pulse has also quickened over the past year. this follows a number of years of difficult structural adjustment after the closure of the car industry. but over the past year, domestic final demand in south australia increased by 5 per cent, which is a very positive outcome. as we have seen nationally, there has been a pick - up in business conditions and investment in south australia. there are positive signs in a number of areas, including tourism, high - value food and beverage production and some parts of advanced engineering and manufacturing. helping the economy here in south australia and elsewhere in australia are the positive outcomes at the international level. investment has picked up around the world and international 1 / 4 bis central bankers'speeches trade is stronger than it has been for some time. as a group, the advanced economies are growing faster than trend and unemployment rates are low. and the chinese economy is still growing strongly, although at a lower rate than in the past. so, at the moment, the international backdrop is pretty positive. at our meeting today, we also discussed the latest inflation data, which showed that both cpi and underlying inflation were running marginally below 2 per cent. this was in line with our expectations and provides further confirmation that inflation has troughed, although it remains low. strong competition in retailing is holding down the prices of many goods : for example, over the past year, the price of food increased by just ½ per cent, the price of clothing and footwear fell 3½ per cent and the price of household appliances fell 2½ per cent. importantly, these outcomes are helping to offset some of the cost of living pressures arising from higher electricity prices, which nationally are up 12 per cent over the past year. another factor influencing recent inflation outcomes is the subdued growth in wages. increases in wages of around 2 per cent have become the norm in australia, rather than the 3 – 4 per cent mark that was the norm a while back. this is

ric battellino : an update on household finances speech by mr ric battelino, deputy governor of the reserve bank of australia, at the 7th itsa bankruptcy congress, sydney, 30 october 2008. * * * the extraordinary developments in global financial markets over the past couple of months have, understandably, undermined households ’ confidence in their finances. this has occurred around the world. • households have seen incredible volatility in financial prices. daily movements in share prices of several percentage points have become the norm. • share prices have fallen sharply around the globe. in australia, the share market is down about 40 per cent in 2008, resulting in negative returns in most individuals ’ superannuation funds. • the difficulties in global interbank markets which had existed since august 2007 took a dramatic turn for the worse last month. the crisis, which had until then been largely confined to wholesale markets, spilled over into a severe loss of confidence among retail investors in financial institutions. governments around the world have been forced to offer wide - ranging guarantees on banks ’ liabilities. • and, to top it off, some commentators are predicting sharp falls in house prices here in australia. given the daily barrage of gloom and doom, it is easy for households to lose perspective, so i thought it would be useful to take an objective look at the state of household finances. in doing so, i will focus on three key areas : • household income ; • household balance sheets ; and • the housing market – in particular, is the australian housing market going to go the same way as the us market? household income the first thing to say about household income is that the past five years have been an extraordinarily favourable period. real disposable income of the household sector grew on average by 6. 1 per cent per year, resulting in a cumulative increase over the five years of more than 30 per cent. one has to go back more than thirty years to find a bigger increase over a five - year period. table 1 : real household disposable income average annual percentage change before interest after interest 1963 - 1968 4. 6 4. 5 1968 - 1973 5. 8 5. 6 1973 - 1978 3. 1 2. 7 1978 - 1983 2. 6 2. 2 1983 - 1988 1. 8 1988 - 1993 1. 7 2. 1 1993 - 1998 3. 1 1998 - 2003 3. 2 2. 9 2003 - 2008 6. 1 4. 8 deflated using the