Retail sales drop as cost of living rises

A further hit on spending is expected with the Reserve Bank's forecast rate rises.
A further hit on spending is expected with the Reserve Bank's forecast rate rises. Photo credit: Getty Images

An economist says rising consumer prices are starting to have some effect on retail sales volumes, but the worst could be yet to come.

Stats NZ's latest retail trade survey showed seasonally adjusted sales volumes fell 0.5 percent in the three months ended March, compared to an 8.3 percent rise in the December quarter.

Westpac senior economist Satish Ranchhod said by and large the quieter start to 2022 was expected after the big jump at the end of last year, on the back of easing Covid restrictions, and the effect of Omicron.

"It comes after a strong end to 2021 and what we're really seeing here is spending remaining resilient as we came into the new year.

"But as we look forward to the next few months, we're really conscious that spending will come under pressure from a range of factors, particularly that squeeze from the cost of living."

But Ranchhod stressed some of the dip in sales volumes for the March quarter could be attributed to shrinking household budgets, and there will be a further hit on spending with the Reserve Bank's forecast rate rises.

"We think those big interest rate hikes from the Reserve Bank are really going to squeeze household budgets. They're facing the pressure in terms of their debt servicing costs [and] they are also seeing the housing market cooling quite rapidly.

"The combination of those factors [is going to slow] household spending over the coming year and that'll be a big drag on overall economic activity."

Ranchhod said dampening economic activity is the aim for the central bank, as a lot the current inflation was driven by strong domestic demand.

"They really need to cool down what has been happening in the household sector if they want to get inflation under control," he said.