Income growth slows, spending rises
New data from Stats NZ showed that New Zealand households continue to feel financial pressure, despite a slight increase in disposable income.
Household disposable income rose 4.7% over the past year, a drop from the previous year’s 6% increase. When adjusted for population growth, individual household incomes grew by only 2.8%, below the 3.3% rise in consumer prices.
This has led to a reduction in purchasing power, particularly in the past three months, where earnings for some households have declined.
ANZ economist Satish Ranchhod (pictured above left) highlighted the increased burden of rising interest rates.
“The average New Zealand household now spends around 10% of their income on debt servicing costs – the highest since 2016,” Ranchhod said.
Households with mortgages have seen interest payments rise from 10% of their income in 2021 to 21% today, a level not seen in over a decade.
Inflation and reduced savings add to financial squeeze
The combination of slower income growth, high interest rates, and persistent inflation has squeezed household spending.
Many families are dedicating a greater share of their incomes to essential expenses such as utilities, insurance, and council rates, leaving less for discretionary spending on dining out or household furnishings.
Ranchhod noted that New Zealanders’ savings have decreased in six of the past eight quarters, further reflecting the financial strain on households.
Household spending outpaces income
Stats NZ also reported that household spending rose 1% in the June quarter, despite a 0.9% drop in net disposable income.
As a result, New Zealanders spent more than they earned, drawing on savings and borrowing to fund increased expenditures, particularly on services and non-durable goods such as groceries.
“With net disposable income falling, the household sector is funding the increase in spending through borrowing and drawing on existing funds,” said Ruvani Ratnayake (pictured above right), senior manager at Stats NZ.
Inflation eases but challenges remain
There is some relief on the horizon for households, with inflation easing and the Reserve Bank (RBNZ) recently cutting the OCR by 50 basis points.
This is expected to provide some financial relief over the coming months, although rising unemployment could offset these gains.
“The labour market is weakening, with unemployment set to rise above 5% before the end of the year,” Ranchhod said.
Despite these challenges, there is optimism that economic growth and household spending will gradually pick up in 2024.
Household net worth falls as property values drop
Household net worth dropped by 2% ($47 billion) in the June quarter, driven by declining property values.
The value of owner-occupied homes decreased by $21bn, while the value of equity and investment shares fell by $27bn.
Despite this quarterly dip, household net worth grew by 1% over the year.
“The June 2024 quarter decrease in household assets reflects a fall in property values for both homeowners and landlords,” Ratnayake said.
Financial pressures continue
While there are signs of easing inflation and expected improvements in borrowing costs, New Zealand households continue to face significant financial challenges, from rising interest rates to shrinking disposable incomes.
These pressures are likely to persist in the short term, though some relief may be on the way as inflation slows and economic conditions improve, Westpac reported.
Read the Westpac report and the Stats NZ media release.
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