ASB predicts Kiwis will have to stump up extra $70 per week next year

As the cost-of-living crisis tightens household budgets, a new report has found Kiwis will have to continue to look deeper into their pockets in 2024. 

ASB's Household Living Cost Outlook estimated an $115 average weekly increase in costs for 2023 to be followed by a $70 average weekly increase in 2024. 

Cost increases for 2024 are likely to be the lowest annual increase since 2020, but they are still elevated when compared to pre-COVID times, it said. 

"The inflation outlook remains inherently uncertain, but we expect the pace of cost increases to progressively slow, both in absolute terms and relative to household incomes," the report said. "Cost movements will be uneven, with slowing increases for consumer goods but for still chunky rises in debt servicing and other consumer services." 

The report stressed these figures are for the average household, with some having to pay less, but others more, particularly those with large debt exposures as mortgage rates predicted to remain high into 2024. 

The report said the challenge to bring inflation back under control to two percent is far from over. 

The Official Cash Rate (OCR) has been held at 5.5 percent for the last four decisions, following 12 consecutive increases. 

ASB said it does not expect further OCR hikes but acknowledges that the Reserve Bank's (RBNZ) patience is "wearing thin". 

"While households do not set prices, their actions will have a tangible influence. The battle on inflation is not yet won and the RBNZ will be looking for restraint on the part of firms, consumers and government to reduce inflationary pressure. If not, higher OCR settings may result," the report warned. 

Overall inflation has remained above the 1-3 percent threshold for 2.5 years and counting. ASB said the longer inflation remains about three percent, the harder it will be for the RBNZ to deliver circa two percent inflation on a sustained basis.  

"The last part of the journey below three percent inflation could be particularly testing. Hence the tough talk by the RBNZ and the warning that the OCR may have to go up if inflation fails to sufficiently cool," the report said. 

ASB said lowering inflation needs to be a team effort. Ongoing consumer restraint and increased consumer resistance to paying higher prices are key prerequisites to cooling domestically generated inflation.  

"If households decide to pop the champagne corks too soon, they might discover a nasty interest rate-induced hangover will result," the report said.