cent mark. this would be above the average growth of consumption for the current decade, but below the average for the period prior to the financial crisis. labour market, wages and inflation i would like to turn to the second question that has occupied us over much of the past year : the degree to which an improving labour market will translate into a pick - up in wage growth and inflation. a distinguishing feature of australia ’ s recent economic performance has been the slow growth in wages. the wage price index has increased by just 2 per cent over the past year. whereas in earlier years, australians had got used to average wage increases of around the 3½ – 4 per cent mark, 2 – 2½ per cent is now the norm ( graph 6 ). growth in average hourly earnings has been weaker still : in trend terms it is running at the lowest rate since at least the 1960s. not only are wage increases low, but some people had been moving out of high - paying jobs associated with the mining sector into lower - paying jobs. we have heard from our liaison program that there has been downward pressure on non - wage payments, including allowances, and an increase in the proportion of new employees hired on lower salaries than their predecessors. 5 / 12 bis central bankers'speeches as i noted earlier, subdued growth in wages is also occurring in a number of other countries. understanding this is a major priority. low growth in wages means low inflation, which means low interest rates, which means high asset valuations. so a lot depends on understanding the reasons for slow growth in nominal and real wages. the answer is likely to be found in a combination of cyclical and structural factors. in australia, we are still some way short of our estimates of full employment of around 5 per cent, so it is not surprising that wage growth is below average. but structural factors are likely to be at work as well. foremost among these are perceptions of increased competition. many workers feel there is more competition out there, sometimes from workers overseas and sometimes because of advances in technology. in the past, the pressure of competition from globalisation and from technology was felt most acutely in the manufacturing industry. now, these same forces of competition are being felt in an increasingly wide range of service industries. this shift, together with changes in the nature of work and bargaining arrangements, mean that many workers feel like they have less bargaining power than they once did. but this is not the full story. it is likely that there is also

not picking up. part of the explanation was the negative spillover effects that i just spoke about, although, as my colleague guy debelle spoke about last week, there were other factors at work as well. 2 now, though, a gentle upswing in business investment does seem to be taking place and the forward indicators suggest that this will continue. it ’ s too early to say that animal spirits have returned with gusto. but more firms are reporting that economic conditions have improved and more are now prepared to take a risk and invest in new assets. this is good news for the economy. the improvement in the business environment is also reflected in strong employment growth. over the past year, the number of people with jobs has increased by around 3 per cent, the fastest rate of increase for some time ( graph 4 ). this pick - up in jobs is evident across the country and has been strongest in the household services and construction industries. it is also leading to a pick - up in labour force participation, especially for women. business is feeling better than it has for some time and it is lifting capital spending and creating more jobs. at the same time, though, growth in consumer spending remains fairly soft. indeed, for a number of years consumption growth has been weaker than we had originally forecast. 3 this is evident in this chart, which shows our forecasts for consumption growth at various points in time as well as the actual outcomes ( black line ) ( graph 5 ). the picture is pretty clear. for some years, consumption growth has been weaker than forecast and it has not exceeded 3 per cent for quite a few years. 4 / 12 bis central bankers'speeches the most likely explanation for the ongoing subdued consumption outcomes is the combination of weak growth in real household income and the high level of household debt. given the persistence of these factors, our latest forecasts have incorporated a flatter profile for consumption growth than has been the case in previous forecasts. an important issue shaping the future is how these cross - cutting themes are resolved : businesses feel better than they have for some time, but consumers feel weighed down by weak income growth and high debt levels. our central scenario is that the increased willingness of business to invest and employ people will lead to a gradual increase in growth of consumer spending. as employment increases, so too will household income. some increase in wage growth will also support household income. given these factors, the central forecast is for consumption growth to pick up to around the 3 per