Three big forces as household living costs accelerate, outstrip inflation

Living costs have increased for the average household in recent months - at a rate even faster than consumers price index inflation. Graphic / NZME

Three big influences drove living costs up 7.4 per cent for the average Kiwi household in a year.

And three big factors are likely to influence how the post-pandemic economy takes form, an economist says.

Groceries, insurance and interest payments drove much of the living cost increases reported today.

Stats NZ said the cost of living for the average household rose in the year to September 30, up from a 7.2 per cent annual increase to the June quarter.

Westpac senior economist Satish Ranchhod said an interplay of migration, house prices, and mortgage rates would be influential in the months ahead.

“We’ve seen large numbers of borrowers rolling off the low rates that were on offer in the wake of the pandemic.”

Ranchhod said about 60 per cent of people on fixed-rate mortgages would come up for repricing in the next year.

That and existing rates increases were a significant drag on domestic budgets, he said.

Roughly a third of homes were rented, a third had mortgages, and a third were mortgage-free.

So rates increases would affect some renters as well as homeowners, Ranchhod said.

After months in the doldrums, house prices could rise almost 8 per cent next year, according to Westpac. Photo / NZME

“We’ve already seen spending on appliances and durable items being held back by these rates increases.”

A fortnight ago, the Kiwibank Household Spending Tracker found tight financial conditions were squeezing household incomes and people were showing less inclination to splurge.

Soon after Covid-19 arrived, interest rates were low, cash was plentiful for many, and overseas holidays were out of the question.

But now, interest rates are high, and consumers might be more likely to defer buying whiteware and furnishings.

The travel and hospitality sectors could also be in for a rough ride, Ranchhod said.

“On the hospitality [front], the squeeze on household finances is certainly going to be a big concern for them.”

But the good news for those industries was the ongoing flow of foreign tourists.

Immigration should also temper a slowdown in GDP growth, Ranchhod added.

The housing market seemed to be stabilising and Westpac economists were picking an average house price increase of nearly 8 per cent for 2024.

“We’re expecting to see house prices pick up materially next year.”

The election of a centre-right government and likely easing of some property investment restrictions would likely reinforce that, Ranchhod said.

National leader Christopher Luxon's election victory could embolden the property market optimists. Photo / Fiona Goodall, Getty Images

And immigration would increase demand for many goods and services.

“With more people in the country, we think we’re likely to skirt a recession.”

Stats NZ consumer prices manager James Mitchell said the cost of living measure included expenses not included in the consumers price index (CPI), such as interest rates.

Mitchell today said interest rates increased by 27 per cent for the average household over the past 12 months.

In the year to the September 2023 quarter, grocery food prices increased 11.2 per cent.

Rent rose at more modest rates, up 5.3 per cent.

Property rates and related services increased 9.7 per cent, according to Stats NZ.

Insurance was up 14.5 per cent, and interest payments increased 27.8 per cent.

The cost of living for Māori households increased 7.4 per cent in the year to September 30.

For the country’s highest-spending households, living costs rose 7.7 per cent over the year.

“Highest-spending households spend proportionally more on interest payments than other household groups,” Stats NZ said today.

The cost of living for the lowest-spending households increased 7.2 per cent.

And for beneficiaries, the increase was 6.7 per cent.

Mitchell said higher prices for rent, grocery food, and interest payments were the biggest contributors to that cohort’s increased living costs.

But removing the $5 charge on prescriptions contributed to lower prices for medical products, appliances and equipment, Mitchell said.

For people on superannuation, the cost of living increased 6.7 per cent.

That was down slightly from a 6.8 per cent increase in the year to June 30.

“Superannuitants are more likely to own their own homes and not have a mortgage than other household groups,” Mitchell said.

As a result, a leap in prices for house insurance and rates had less of an impact on the 65-plus cohort.

The CPI was up 1.8 per cent in the September quarter, for an annual rate of 5.6 per cent.