The rising costs of living are causing households' budgets to be stretched, however, ASB economists are warning Kiwis will need to find an extra $110 per week to keep up with soaring costs over the next 12 months.
A new ASB report on household living found drivers behind higher prices are leading to widespread increases across household budgets. This comes as annual inflation rose to 7.3 percent in the June quarter, the largest jump in 32 years.
ASB economists said more of the increase in living costs is expected to be domestically focused, with two-thirds of the $110 weekly increase would either be from non-tradable goods/services or debt servicing.
The report found those with large mortgages are likely to bear the brunt of the pain.
ASB is forecasting even more aggressive interest rates from the Reserve Bank (RBNZ), predicting the official cash rate (OCR) to rise from its current level of three percent to peak at 4.25 percent by early next year.
Even if the OCR is cut in 2024, the average borrowing costs are unlikely to move lower until 2025, the report said.
However, household spending will likely remain subpar over the next year, which should relieve some of the pressure to raise the OCR.
ASB economists said the average mortgage interest rate is expected to climb slightly above 4.5 percent by the end of the year and approach 5.5 percent by the start of 2024.
But while higher mortgage rates negatively impact borrowers, some other households may experience an increase in cashflow from higher mortgage and household deposit interest rates.
Household incomes
While the idea of needing to cough out an extra $110 per week may be daunting, the report found while the cost of living has increased, so have household incomes.
The report said household incomes had risen by around $100 per week in the year to June 2022.
ASB economists said they were surprised with how quickly household income growth has responded.
A tight labour market has meant companies have had to pay higher wages to attract and retain staff.
According to June income figures from StatsNZ, average household incomes rose by close to six percent and wage and salary earners registered an 8.7 percent increase in weekly gross income.
"We expect household incomes to post more sizeable increases in the next couple of years, largely reflecting sizeable increases in wages and salaries and the expected rebound in other incomes," they said.
"This should mean households in general should have sufficient funds to pay the bills and potentially increase consumer spending."
