Getting wealthier, feeling poorer

Statistics are expected to reveal that our salaries are rising more than price increases, in contrast to people's perceptions.

WE SHOULD be feeling wealthier, but economists and retailers predict it still won't be enough to encourage us to start spending again any time soon.

Wage figures on Wednesday are expected to show that salaries rose on average between 3.5 per cent to 4 per cent last year, more than the price increase on the things we buy. The data is likely to reflect continued strong wage growth in the resources, electricity, gas and water services industries, and in areas such as wholesale trade and construction.

The weakest wage growth is tipped to be in the sectors that did it tough last year and are still struggling: retail, accommodation and food services. But even in those industries, wages are expected to have matched the annual rate of price inflation of 3.1 per cent.

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CommSec has calculated that over the past four years, average wages increased 21.5 per cent, while prices rose 12 per cent. That's some serious extra spending power.

Yet we continue to save, we continue to pay down debt, and when we do shop we look for bargains. Consumer sentiment readings indicate we are still feeling relatively down about our lot, despite last week's bounce.

This is strange because, according to CommSec chief economist Craig James, many goods have never been cheaper - mainly because of the strong Australian dollar.

"Cars are at their most affordable in 35 years, while toasters, kettles, dishwashers, fridges and washing machines posted their biggest price drop in 40 years in the December quarter," he says.

So what gives? Macquarie Bank senior economist Brian Redican believes there are two things at play - wealth has been declining for people in the property and equity markets, while for households generally other costs, such as electricity, water, council rates and petrol, have been increasing substantially.

"Many households are seeing big cost rises that are not necessarily reflected in the CPI," he says. "With the continued uncertainty in the labour market, it's going to be a tough slog for retailers in 2012."

Besa Deda, chief economist at St George Bank, says the negative headlines surrounding Europe and the global economy are having an impact.

"Relative to the rest of the world, we are in a reasonably good position, but we just don't feel it," Ms Deda says. "That's why we are showing selective caution - the retail spending numbers are weak, but household consumption is still rising at a moderate pace."

Mr James says expenses such as home internet access, mobile phones and pay TV used to be discretionary but are now considered essential.

"Basically, we have found new uses for our money," he says. "We should be feeling wealthy but unfortunately it's the way people work - when anything is going up, we know about it in a big way but when it's going down, we take less notice.

"We've got bread and milk at $1. Supermarket price wars in meat, fresh fruit and seafood - in terms of food there are some good bargains on offer. But we notice it much more when the electricity bill goes up, when council rates go up and the price of petrol."

That's why Mr Redican says it will need some sort of circuit breaker to turn things around and get people spending again.

"A sharp fall in the Australian dollar will take a lot of the pressure off a lot of companies, and further cuts in interest rates would make everyone feel a lot happier," he says. "But it's hard to see either of those happening soon."

The big retailers are not feeling it yet. Margy Osmond, chief executive of the Australian National Retailers Association, says that the extension of the January sales were a sign that people were still not spending. "Retail is heading into the slowest quarter traditionally for the sector and with the Reserve Bank unlikely to move on the cash rate any time soon, there is little light at the end of the tunnel for the sector in the short term," she says. "Any growth in the sector is likely to be some way off and may not occur until well into the second half of 2012."

Mr James says the latest round of job cuts is only making it worse for consumer sentiment.

"A number of major companies are reassessing their strategy and are cutting jobs - this is not the sort of environment to go out there and spend like no tomorrow."

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Getting wealthier, feeling poorer