Shopping, takeaways, new car: what NZ households will chop to cope with inflation

Monday, 18 July 2022

Inflation has reached 7.3%, Stats NZ says.

Inflation hitting 7.3% is “more bad news for people who have had a lot of bad news already”, says Ronji Tanielu, Salvation Army social policy analyst.

Price inflation had stripped spending power from households, but the effect was felt most keenly by people on lower incomes, Tanielu said.

Demand for food bank parcels from charities, and food grants from Work and Income was already high, and the rising cost of living could prompt a rise in desperation borrowing, Tanielu said.

“When you are that cornered, and in a dark place then you are going to be desperate for money.”

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But economists warn that shop, cafe and restaurant owners face the relative hardship of not being able to lift their prices to cover their rising costs.

Stats NZ Taturanga Aotearoa data released on Monday shows across-the-board price rises, with fuel and food inflation leaving many households with little choice except to draw on their savings, tighten their belts, and in extreme cases, seek emergency help.

Westpac senior economist Satish Ranchhod said households faced with costs rising faster than incomes tended to cut back on luxuries like eating out, takeaways, and buying things like televisions as well as home furnishings.

Already, car sales had plunged after consumer confidence to make large purchases fell, driven by inflation and rising home loan costs.

Independent economist Tony Alexander’s spending intentions survey indicated eating out, clothing, footwear, electronics, online services, furniture and cars were the top things households intended to spend less on in the coming 12 months.

But Alexander said consumer reluctance may not get much worse.

The jump in annual inflation from 6.9% to 7.3% was expected, and households had already factored it into their spending expectations.

“The impact of inflation on consumer confidence is already there.

“This really doesn’t change much at all. The question is, is this the peak”Alexander said.

Ranchhod said consumer confidence would remain subdued, but if the country could avoid recession, it may not fall further.

“At this stage New Zealand looks like it could skirt that, but only just,” he said.

The last two years had seen many better-paid households build up their savings, giving them a buffer until their wages could catch up with inflation.

“People on lower incomes haven’t had the same chance to save,” Ranchhod said.

Rising prices for necessities like food and fuel had a disproportionate effect on poorer people, he said.

Motorists are paying high prices for petrol. Gaspy showed Auckland motorists faced prices for 91 octane petrol ranging from $2.77 to $321 per litre on July 18.

Stats NZ said the price of grocery food was up 7.1% in the 12 months to the end of June.

Kiwibank chief economist Jarrod Kerr said prices at the pump were up 32% on a year ago, the largest annual increase since 1985.

“The rapid run up in prices is a global phenomenon. Inflation is running at 9% globally,” Kerr said.

“We’re importing a lot of our inflation with a weakening currency, stubbornly high transport costs, high commodity prices and a general lift in the prices of imported goods.”

Restaurant Association chief executive Marisa Bidois says hospo businesses are being supported by a public enjoying freedom to go out.

It may be New Zealanders experience inflation more keenly than other countries, he said.

Thanks to its high cost of living, New Zealand was ranked the second-worst destination for working abroad by expats.

The Expat Insider report ranked New Zealand as the worst-performing of 52 countries for personal finance, with the highest proportion of expats claiming their income was not enough to live a comfortable life.

As households cut spending, retailers and hospitality businesses would struggle to pass on price rises, Ranchhod predicted.

“They are likely to take a hit on margins,” he said.

But as yet, retailer and hospo industry groups were not seeing big drops in spending among consumers.

Marisa Bidois, chief executive officer of the Restaurant Association, said things had been reasonably positive for hospitality businesses after the end of Covid restrictions.

“We’ve been hearing that businesses are doing better than they thought they might,” Bidois said.

However, in tough times fewer people went out, and spend per table dropped, she said.

“We haven’t seen that yet.”

Greg Harford, chief executive of Retail NZ, said consumer spending at the end of June was down just 1% compared to the previous year.

But petrol retailers accounted for a greater share of spending, while other kinds of retailers were seeing spending drops.

“Consumer spending is holding up relatively well,” Harford said.