Cost of living: Kiwis will need tighter budgets as retailers plan massive price increases - economist

Kiwis will need to keep a closer eye on their budgets as many retailers prepare to increase their prices by 7.5 percent, a leading economist says.

A new survey has found 90 percent of retailers plan to up their prices in a bid to stay afloat but 35 percent of shop owners aren't even sure if their doors will be open in a year.

Coupled with annual inflation hitting 5.9 percent - the biggest jump in three decades - the cost of living and paying for everyday items has hit New Zealanders hard.

Brad Olsen, principal economist at Infometrics, said while retailers hiking their prices is "very alarming" - it is to be expected since it is in line with inflation and the disruption from COVID-19.

"But now we're simply buying too much that we're just unable to supply," he told Newshub Live at 8pm.

"In my mind, one of the big causes here is around those supply chain issues, the transport costs and similar. We know, for example, that shipping costs are still seven times what they would've been pre-pandemic."

He added the worry going forward is that the momentum in prices is only going to continue increasing - and there isn't any relief in sight to combat this.

"I think particularly this year we are going to see New Zealand households have to have a much closer focus on their household budgets," Olsen said.

"Trying to make ends meet is difficult and trying to get to those essentials first. But we also know those prices are going up across the board - rents are increasing, fuel prices and the likes of food."

Brad Olsen.
Brad Olsen. Photo credit: Newshub.

But the prices of staples have increased across the board and Olsen said that the likes of toilet paper is up 17 percent in the past year.

He worried households were going to be forced to make tight adjustments to their budgets just to make ends meet and put food on the table, because "this is not going away any time soon".

"We know that these inflationary pressures are going to hit those lowest and middle-income families the hardest because they can't adjust their spending quite as much," Olsen said.

"Those people who have more money, those households who are able to adjust their spending to travel a bit less or spend their money in different ways will naturally do that but people who live paycheck to paycheck are really going to struggle and I think the Government is going to have to announce further support for those middle to low income New Zealanders this year."

But Olsen added the Reserve Bank has a role to play since it's their job to control inflation and "at the moment it's failing".

"They're going to have to take some very quick steps and popular steps to raise interest rates to try and reign in inflation, because the longer we let inflation run wild, the harder it's going to get to correct, the harsher it's going to be on New Zealand households."

Earlier on Thursday, Retail NZ chief executive Greg Harford told Newshub retailers increasing their prices was reflective of the tough situation they're in.

"The fact that 90 percent are saying they're putting their prices up is a worrying number but it reflects really the cost pressures the retail sector is under," he said.

He also didn't believe the Government truly knew the pressure the retail sector was under.

"I don't think there's a real understanding sometimes in Government about the true impact of everything that's happened on businesses."