Wage growth was likely to rise towards its 15-year average of 3.4% over the next year or so, as the unemployment rate falls, according to economic indicators released by the Treasury.
The deepening dichotomy between growth in economic activity and prices was evident in the labour market and even more so in the retail industry.
Demand for workers increased at a brisk pace in the September quarter.
Employment rose 0.8% in the quarter, to be up 3.2% for the year, while wages increased moderately, up 2.3% for the year, In the retail industry, the difference between growth in activity and prices was stark, the Treasury said.
Retail sales volumes increased 1.5% in the September quarter but prices fell 0.6%.
Elsewhere, dairy export prices continued their downward trend, as did international oil prices. The firmer exchange rate, up 2.5% on a trade-weighted basis, reinforced the downward price pressures.
''The unemployment rate fell to 5.4%, still a little above its post-2000 average, suggesting that, all else equal, wage growth will rise towards its 15-year average of 3.4% over the next year or so.''
However, inflation, which was a key ingredient in wage negotiations, had been weaker than expected so far this year, indicating the rise in wage growth over the year ahead was also likely to be more gradual than expected, the Treasury said.
The Reserve Bank's survey of expectations showed market analysts expected annual consumer price index inflation to be around 1.6% in September 2015, down from about 2% at the time the pre-election forecasts were completed.
Reflecting the weaker price pressures, surveyed expectations of short-term interest rates in 12 months' time were also lowered.
Domestic inflation had been more subdued and dairy export prices had fallen more sharply than the Treasury and other forecasters assumed earlier this year.
As a consequence, growth in expenditure on goods and services and in farm incomes was likely to be weaker than forecast, resulting in lower tax revenue.
Lower interest rates would also affect tax revenue collected from resident withholding tax on interest income.
Internationally, growth remained uneven in the advanced economies.
The recovery continued in the United States and in the United Kingdom.
Activity in the euro zone and Japan remained weak and further macroeconomic policy stimulation was expected.
Chinese activity showed broad weakness in October, partly owing to the housing market slow-down and monetary policy support had been limited, the Treasury said.
The Treasury's Half-Year Economic and Fiscal Update would be released on December 16.
