SYDNEY (Reuters) - Australian wages were rising at their slowest pace on record, official data released on Wednesday showed, subduing both inflation and spending at a point when household debt has climbed to an all-time peak.

A shopper walks across a pedestrian bridge in the central business district (CBD) of Sydney, Australia, May 5, 2017. Picture taken May 5, 2017. REUTERS/Steven Saphore

And worries over worsening family finances following the federal budget announced last week contributed to weakening consumer sentiment, according to an independent survey by the Melbourne Institute and Westpac Bank WBC.AX. [nL4N1IJ08T]

It will all make disappointing reading for the Reserve Bank of Australia (RBA) which has held interest rates at a record-low 1.50 percent for a ninth straight month, hoping for a pick-up in the labor market as well as in wages and inflation. [nRUAGGED5K]

The wage price index rose just 0.5 percent in the January-March quarter. Quarterly wage growth has been stuck in a range of 0.4-0.6 percent since June 2014.

Annual wage growth held at 1.9 percent, the lowest on record. That was less than half the wage growth rate workers enjoyed a decade ago when a mining boom boosted pay across Australia.

“The rise in wages hasn’t even been enough to cover the rise in prices, let alone allow households to consume more,” said Paul Dales, chief economist at Capital Economics.

“This goes a long way to explaining the low level of consumer confidence.”

The consumer sentiment index dropped 1.1 percent in May to 98, its lowest since January and below a long-run average of 101.2. [nL4N1IJ08T]

It was the second consecutive month that the index has fallen, taking it further away from the 100 level where the number of pessimists matches optimists.

Inflation edged over 2 percent last quarter for the first time since 2014, although key measures of core inflation stayed stubbornly below the RBA’s 2 to 3 percent target band. [L4N1HX6L0]

Economists pointed to elevated levels of underemployment - which captures employees who want to work more hours - as one of the key reasons why wages were not gathering pace.

Jobs data for April is due on Thursday. There were tentative signs of a turnaround in March, when 60,900 full time jobs were added, and other leading indicators of the economy have also generally been more encouraging.

“One positive in today’s (consumer confidence) data is a 3.4 percent drop in the unemployment expectations index,” said Kristina Clifton, economist at Commonwealth Bank of Australia.

“Nonetheless job security fears remain reasonably high. This is not surprising given the elevated underemployment rate and fairly modest jobs growth.”

The RBA sees wages rising gradually in line with an improvement in the jobs market and the end of the drag on growth from a slump in mining investment.

Yet there was scant sign of a pick-up in the latest wages report. Not a single industry from manufacturing to healthcare raised wages more than 2.3 percent annually. Workers in mining, formerly Australia’s star sector, saw annual wage increases of 0.6 percent.

Wage hikes were better in the public sector at 2.4 percent compared with 1.8 percent in the private sector.