The squeeze on household budgets has caused retail sales to decline for the second quarter in a row and the outlook remains bleak as the country is yet to see the full effects of the hike in interest rates.
Retailers have seen the quietest quarter at the tills in 14 years, with an expert warning there is "more pain to come".
According to Stats NZ, the value of seasonally adjusted retail sales increased slightly this quarter by $1.1 million to $29 billion, however, the volume of sales fell by 2.3 percent.
Informetrics chief forecaster Gareth Kiernan said the June quarter was the worst quarterly result since the global financial crisis in 2008.
"We know that a big chunk of what was driving that was higher petrol prices, but higher prices across the board have also meant that when we are turning up to the shop we are getting less bang for our buck," Kiernan told Bernadine Oliver-Kerby on AM.
Keirnan said high fuel prices drove up the total amount of spending on petrol significantly, despite Kiwis buying 13 percent less fuel.
He said spending on homeware and hardware has dropped off following a boom in those areas during the COVID-19 lockdowns.
Retail NZ's second-quarter report found over half of retailers are not meeting their sales targets due to inflationary pressures and are therefore passing some of these costs onto consumers.
"There is just such a squeeze on household budgets," Keirnan said.
With wage increases not keeping up with inflation rates and rising mortgage rates sucking more money out of people's discretionary spending, there is less money to go around.
Consumer confidence has been very weak, dropping to the lowest level since 1988 and is expected to stay close to record lows.
Keirnan said while the Reserve Bank will be pleased to see demand dropping away, price pressures are still very intense across the economy so there is still pressure on interest rates going up.
The Reserve Bank hiked the official cash rate by another 50 basis points as it battles to keep a lid on spiraling inflation.
Keirnan said the country has just avoided a recession because of the bounce back in the tourism sector after borders reopened which will add a significant amount of growth over the next year or so - but for New Zealand retailers it isn't looking as positive.
"Probably just enough to keep the economy out of a recession, but domestically, for those businesses who are focussing on New Zealand household and retailers are really at the heart of that, it is going to feel pretty much like a recession to them," Keiran said.
Bleak outlook for medium-long term
Keiran said there isn't a lot that could turn consumer confidence around in the next 18 months.
"Still interest rates are some way away from their peak so this does suggest growth over the next year or so will continue," he said.
He said the country is yet to see the full effects of interest rate rises on people's spending decisions and businesses' profitability.
"So there is still more pain to come as that works its way through the system."
