The economy is moving from recovery to expansion mode and this will bring challenges for regional areas lacking workers to farm, mine and build homes, the central bank warns.
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The bounce-back has been quicker and stronger than expected, supported by a V-shaped recovery in farm output, Governor Philip Lowe told an Australian Farms Institute conference in Toowoomba on Thursday.
The average unemployment rate for regional Australia is at its lowest level in more than a decade.
"Many firms are now saying that finding suitable labour is a major constraint on output," the Reserve Bank of Australia chief said.
Reports coming in from businesses in regional Australia, including those in the agricultural, hospitality, mining and construction sectors, that there is a labour shortage.
"And it is noteworthy that even in those pockets where firms are finding it hardest to hire workers, wage increases are mostly modest," Dr Lowe said.
"While there is always a degree of uncertainty about the future, we are not expecting the influence of these various factors to wane quickly."
He said households are being affected by rising house prices, bringing wealth for some but rental pain for others with rents rising quickly in many regional centres.
An exodus from cities and a boom in housing construction brings another challenge for regional Australia - the lack of enough workers to build new dwellings.
Dr Lowe said regulators were also keeping a close eye on household borrowing as risks increase when debt outpaces growth in incomes, although this is not the case at the moment.
Nevertheless, curbs on lending are being discussed to be ready for any scenario where rapid growth in household debt heightens risks to economic stability.
After a devastating drought, farm output is up 40 per cent since the middle of last year and now stands at a record high.
Rural exports are also at a record high.
"This recovery in the farm sector is positive news not only for those in the industry and the communities that support it, but it is also making a welcome contribution to the recovery in the national economy," Dr Lowe said.
But international borders are still largely closed, outbreaks of the virus are still leading to periodic lockdowns, and many firms are still adjusting to changes in how people spend their money and where they work.
"It is also worth recalling that the economic recovery is being underpinned by unprecedented fiscal and monetary policy measures that will not last forever."
Australian Associated Press
