Australian households are rationalising their expenditures, prioritising essential services and doing without goods, leading to what a central bank official called "very subdued trading conditions in many parts of the retail sector."

Over the past two decades, a majority of Australians, according to Reserve Bank of Australia Assistant Governor Philip Lowe, have adjusted their spending habits, with more disposable cash earmarked on experience-related purchases rather than mere consumption.

"This would be consistent with the strong growth in spending on recreational activities that has occurred over recent times," Lowe told the Australian Associated Press.

Speaking at the Australian Economic Forum in Sydney Thursday, the RBA official also revealed that household disposable income jumped by 7.5 percent over the past 12 months and "this has boosted spending on services that are quite sensitive to income growth."

The pattern gleaned by the RBA pointed to younger Australians opting to hold on to their cash holdings more than the generation that preceded them, Lowe explained.

This new reality, while hurting the retail industry, actually kicks in positive indicators for the country's risk-management outlook, Lowe stressed, in which "households are using some of their income growth to build up bigger financial buffers, and this should hold them in good stead in the uncertain world in which we live."

The RBA projects that the current trend will be sustained in the quarters and years ahead as Lowe noted that "saving decisions today are also likely being influenced by the earlier rise in debt levels relative to incomes and by debt-servicing burdens."

As younger households save further, it is unlikely that goods consumption will witness dramatic uptick in the near future as the RBA believes that much of cash will be used up in acquiring properties, which is especially true for Aussies who are first-home buyers.

"The adjustments seem to have been particularly pronounced among younger households who are hoping to enter the housing market or who have recently entered the market," Lowe explained.

To take advantage of the current setup, the RBA supports the Australian Bureau of Statistics's call for concerted efforts "to improve the measurement of services consumption."