Cost of living crunch: 'Household budgets squeezed in a way they haven't been for decades'

Tuesday, 21 June 2022

Confidence to make major purchases like whiteware, or a car, is lower than ever recorded, Westpac says.

Financial pressure from inflation and rising home loan rates has driven consumer confidence to record low levels, Westpac says.

The Westpac McDermott Miller Consumer Confidence Index dropped sharply in the June quarter, falling to its lowest level recorded since the survey began in 1988, said Westpac’s acting chief economist Michael Gordon.

It indicated there were far more New Zealanders who were pessimistic about the economic environment than those who were optimistic, he said.

“Household budgets are being squeezed in a way that they haven’t been for decades,” Gordon said.

* Economic confidence in Canterbury takes a tumble but expected to rebound in 2022

The consumer price index (CPI) records changes in the price of hundreds of goods and services. (First published January 20, 2022)

* Consumer confidence has recovered most of the drop from Covid-19

Aucklanders and Southlanders had the lowest level of consumer confidence in the country, with people from Waikato, which continues to benefit from high commodity prices feeling the most confidence.

“The combination of rising mortgage rates and increases in living costs has already taken a large bite out of disposable incomes,” Gordon said.

“And with interest rates set to rise even further, many households will find the pressure on their finances becoming more intense over the coming months.”

Many households were reining in their spending, Westpac found.

The survey showed a lower proportion of households than had ever before been measured felt confident about making major purchases like whiteware, or a car.

“The pressure on household finances is weighing on spending appetites, and we’re expecting a downturn in economic growth more generally over the coming months,” Gordon said.

Gordon said: “The extent of that downturn will have an important bearing on how much further the Reserve Bank will raise the official cash rate. If demand slows sharply, consistent with the drop in consumer confidence, increases in the cash rate are likely to fall short of what financial markets are expecting.”

In the early months of high inflation, and mounting fears over an economic downturn, it was women who were most pessimistic about the economy, but men were now almost as pessimistic as women, Gordon said.

On a personal front, men had now moved to be less optimistic about their own financial situation improving in a year’s time, said Imogen Rendall, market research director of McDermott Miller, which conducted the survey.

“With many respondents expecting bad economic times ahead for New Zealand, as well as an expectation that their own financial situation will worsen, it looks like we are in for a bumpy ride,” Rendall said.

Satish Ranchhod, senior economist at Westpac, said: “With growing pessimism about the economic landscape and mounting concerns about their personal finances, households are keeping an increasingly close eye on their purse strings.

“In fact, the number of households who think it’s a good time to make a major purchase has collapsed, dropping to the lowest level on record.”

He said households reported they had scaled back their spending on leisure activities like dining out even as health restrictions had been gradually wound back.