This spending increase had its biggest impact on new car purchases and household furnishings.

According to Dr Lowe, the correction now taking place in major property markets could see an unwinding in household consumption which would feed into the broader economy.

"Over recent years, spending by households has risen at a faster rate than household income; in other words, the saving rate has declined," he said.

"The results that I just spoke about suggest that rising housing wealth played a role here. If so, falling housing prices, and a decline in measured household wealth, could have the opposite effect."

"My conclusion here is that wealth effects are influencing consumption decisions, but they are working mainly through expectations of future income growth. Swings in housing prices and turnover in the housing market are also having an effect, but they are not the main issue."

The RBA left official interest rates at 1.5 per cent at its March board meeting on Tuesday. Financial markets believe the bank will be forced into cutting rates at least once in the next 12 months.

The governor maintained his argument that there was just as much chance of interest rates going up as coming down.

Dr Lowe said a key issue was the jobs market, with strong employment growth a "central ingredient" in an expected lift in inflation.

He said recent figures had been encouraging with jobs growth strong and hiring intentions positive.

"Other indicators of the economy, though, paint a softer picture. We will receive another reading on GDP growth later this morning, but growth in the second half of 2018 was clearly less than in the first half," he said.

"This is similar to the picture internationally. In a number of countries, including our own, there is growing tension between strong labour market data and softer GDP data. We are devoting significant resources to understanding this tension."

"The board will continue to assess the shifts in the global economy, trends in household spending and how the tension between the labour market and output indicators resolves itself. We have the flexibility to adjust monetary policy in either direction as required."

Dr Lowe said the current "adjustment" in house prices was unusual compared to past falls.

He said unlike past drops, the current period was not being affected by rising mortgage interest rates or higher unemployment.

"So, the origins of the current correction in prices do not lie in interest rates and unemployment. Rather, they largely lie in the inflexibility of the supply side of the housing market in response to large shifts in population growth," he said.

Dr Lowe said demand for Australian housing by foreigners and domestic investors, aided by surging population growth and "favourable tax treatment", had also been key parts of the lift in prices.

He said low interest rates may have contributed to prices but it was not a major factor.

" The low interest rates over the past decade did increase people's capacity to borrow and made it more attractive to borrow to buy an asset whose price was appreciating," he said.

"But the increase in housing prices is not just about low interest rates. The variation across the different housing markets indicates that city-specific factors have played an important role."