Kiwis advised to spend wisely amid inflation and rising cost of living

New Zealanders are being advised to spend carefully, budget and save as living costs continue to rise.

New data released earlier this month showed the Consumers Price Index rose by 7.2 per cent in the year to the September quarter - well above Reserve Bank and market expectations of 6.4 and 6.5 per cent.

There are also predictions the Official Cash Rate (OCR) could reach 5.25 per cent - from the current 3.5 per cent.

Economists warned borrowers are in for a tough time with interest rates likely to be hiked by more than previously planned and said there's increased risk of a "hard landing" – the Reserve Bank's tightening of monetary conditions bringing the economy to a screeching halt, leaving people unemployed.

Finance Minister Grant Robertson. Photo / Mark Mitchell

Despite the headwinds, Finance Minister Grant Robertson said the Government doesn't intend to extend the temporary removal of fuel taxes, provide another iteration of the cost of living payment, or make income tax changes to support low-income earners.

Bay Financial Mentors Tau Awhi Ora manager Shirley McCombe said inflation would hit accommodation, food and petrol costs the hardest.

"Whānau who are only just making ends meet will slip below the line.

"The cost of accommodation in Tauranga is huge and supply is low, families will go without food to make rent payments."

McCombe said if the situation worsened, clients would turn more and more to credit.

"They will borrow but then be unable to make the repayments. Escalating debt just adds to the weekly pressures of making ends meet.

"The other concern is for those who have purchased and then are unable to make repayments due to interest rate rises."

McCombe advised families to take control of their finances.

"Know what you have available each week and plan for those larger expenses that often push you over the edge.

"Talk to a mentor and check out the support that is available to you. If you are struggling with debt, come and see us. This is a really tough time for many, many people but you don't have to try to manage it all on your own."

Bay Financial Mentors Tau Awhi Ora manager Shirley McCombe. Photo / Supplied

Tauranga Business Chamber chief executive Matt Cowley said most business owners were worried about New Zealand's negative net migration, high inflation and global uncertainties heading into 2023.

"Businesses understand that raising New Zealand's official cash rate to combat inflation is a necessary evil but it is making it challenging for businesses to gain commercial loans."

Cowley said raising the cash rate was also removing consumers' discretionary spending.

"Businesses hope the Government's fiscal policy is working with, not against, the Reserve Bank of New Zealand's monetary policy."

Tauranga Business Chamber chief executive Matt Cowley. Photo / Mead Norton

Grey Power Tauranga president Jennifer Custins said in the past month everybody in the older age group was talking about supermarket and petrol prices.

"People I have thought wouldn't be affected financially are running out of their budgets ahead of time.

"A the moment these wouldn't be people who are just living on the super but the interest on savings is inconsequential unless you've got millions."

Custins said people who were in the older age group and single and paying rent would be worst affected if prices continued to rise.

"If you're paying $450 a week out of a benefit that gives you $500 I don't know how you'd cope. Even if things stay as they are and don't get worse, it will be difficult."

Custins worried there would be a lack of dialogue and conversation about the needs of older people if economic issues worsened.

Grey Power Tauranga president Jennifer Custins. Photo / File

Rotorua-based first-home buyer Raj Nakura said he was worried by the amount of money he could end up spending on groceries.

"These days, $200 can get you some frozen items and fruits. Inflation is increasing and it doesn't match what people earning."

Nakura paid the deposit on his first home in September, after two years of working multiple jobs and saving everything he could.

"Basically, I'm only spending on what I really need."

Nakura said avoiding eating out and cooking at home definitely helped. Limiting takeaway coffee purchases was also a big saver.

"Coffee costs $5.50 to $6 now and that's without alternative milks."

University of Otago Department of Economics senior lecturer Dr Murat Ungor. Photo / Supplied

University of Otago Department of Economics senior lecturer Dr Murat Ungor said, especially for low-income households, the focus would be on survival for the next few months.

"Inflation is going to be with us for a while."

Ungor said the spillover from "global shocks" caused by the Russia-Ukraine crisis, global supply chain issues exacerbated by China's continued zero-Covid policy were still being felt in the New Zealand economy.

"One of the major price increases in New Zealand has been in the construction industry, where most materials are imported."

Ungor said these uncertainties in global economics influenced New Zealand's inflation rate which in turn affected the prices of food, the rental market and transport.

"In a low-income household, the majority of their income will go towards food, rent and transport and if you see inflation in those categories then it is a very major problem for those people."

Ungor said New Zealanders would need to spend very carefully.

"We cannot have luxuries. If as a family you used to go out for a dinner twice, it will need to go down to once or not at all."

Ungor said his advice would be to spend carefully on essentials and then save what was left over.

"The focus is on survival."