Kiwis aren't 'out of the woods yet' as spending focus turns to essentials - Brad Olsen

An independent economist says Kiwis are turning their attention to the essentials as data shows spending is up annually. 

Retail card spending data from Statistics New Zealand shows spending rose $171 million (2.6 percent) in January 2023 compared with December 2022 when adjusted for seasonal effects. 

On top of this, core card spending data showed a 9.1 percent increase in spending over the December 2022 quarter compared to the end of 2021.

Spending on fuel and apparel was down $26 million (4.3 percent) and $17 million (4.7 percent) respectively while groceries and liquor were up $39 million (1.5 percent).

Infometrics principal economist Brad Olsen told AM on Monday people are focusing their spending on the essentials.

"We're starting to see a real pivot in our spending. That trend had already been coming through across 2022, but really what we're seeing is a continuation of people putting the essentials first," Olsen told AM Early host Nicky Styris.

The early signs for 2023 are positive for spending, but Olsen warns Kiwis are yet to feel the pain of the increases to the official cash rate by the Reserve Bank (RBNZ).

RBNZ hiked the official cash rate by 50 basis points last week, taking New Zealand's baseline interest rate to 4.75 percent. The RBNZ has now added 450 basis points since October 2021.

"I think we're starting to see some of the early signs, if you will, of the Reserve Bank's actions starting to come through in the numbers," Olsen said. 

"Realistically, there is a lot more of those Reserve Bank increases that have occurred but haven't yet filtered through into people's household budgets." 

Olsen believes the reason Kiwis are turning their attention to the essentials is that a large number of them still need to refix their mortgages in the coming months.

"We know there's still around half the mortgage book that needs to refix onto higher interest rates in 2023 and that means there's a lot of households who are currently able to spend more, their mortgages haven't increased yet, but they know there's a bigger bill around the corner and they're starting to make those spending adjustments," he said.  

"I don't think we can call ourselves out of the woods yet … demand and supply remain out of balance and until we bring demand back that little bit more, there is an expectation that inflation will remain higher for longer until we can bring that demand down." 

Infometrics Principal Economist Brad Olsen.
Infometrics Principal Economist Brad Olsen. Photo credit: AM

Other areas that have taken a hit are home renovations and electronics as Kiwis adjust their spending focus. 

"What we do see is that inflation is higher in some of those more discretionary or non-core areas, particularly the likes of renovations, home DIY. Those sorts of homeware-based goods have been increasing in price quite a lot. Anyone who's tried to build a deck over summer or similar has seen those cost pressures," Olsen explained. 

"So households do seem to be pulling back on more of those renovations and DIY to try and get their spending under control, leaving more to make sure that they put the likes of food on the table, fuel in the car, a roof over their head." 

Watch the full interview with Brad Olsen above.