Households are adjusting their budgets, economist says
Brad Olsen (pictured above), Infometrics’ chief economist, analysed recent household expenditure data, highlighting how inflation has significantly altered New Zealanders’ spending habits.
According to Olsen, the June 2023 Household Economic Survey (HES) offers fresh insights into how high inflation has impacted New Zealand households’ spending patterns. The survey, capturing the peak of consumer price inflation, showed that despite not fully accounting for interest rate increases, households are adjusting their budgets across various spending categories.
Increased household expenditure
Olsen noted that Kiwis are spending $248pw more in 2023 than in 2019, pointing to an overall escalation in expenditure across all 12 headline spending groups. This increase is attributed to higher costs and changing priorities, with the largest allocations going towards housing and housing utilities, food, and transport.
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Prioritising essentials over luxuries
While household spending rose across all categories in 2023 versus 2019, the increase wasn't uniform. High inflation prompted households to reassess their spending priorities and preferences, with the data revealing a significant rise in spending on essential items like food and insurance. Meanwhile, discretionary spending on recreation, culture, and communications has seen a relative decline.
“The largest cutback in relative spending was on recreation and culture... when inflation hits, renovations and maintenance take more of a backseat to buying food,” Olsen said.
Implications for inflation and future spending
The shift in household spending towards essentials such as food, insurance, and rates suggested that future inflation impacts may hit these areas harder.
Olsen emphasised the importance of updating the CPI basket to reflect these changes accurately, ensuring effective inflation targeting by the Reserve Bank.
“A greater spending focus on food, insurance, and rates now means that higher inflation for those groups will be hitting the average household even harder,” he said.
Read Olsen’s analysis on the Infometrics website.
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