Inflation increases are largely driven by rising rents and construction costs. Video / NZ Herald
New research shows consumers are tightening their spending as the cost of living and inflation continues to bite.
Findings from Boston Consulting Group's inaugural New Zealand Consumer Sentiment Survey, part of the firm's global consumer sentiment series, outlines that Kiwis harbour some of the world's highest levels of concern aboutrising inflation and Covid-19.
When compared to consumers in Britain, North America and Europe, Kiwi shoppers were found to show a higher level of concern than those in most other markets surveyed around the world, and found to be more likely to pull back in spending at greater rates.
The findings reveal conservatism among Kiwis. Perhaps surprising, given that the other nations surveyed were grappling with higher inflation rates than New Zealand. The United States inflation rate is 8.3 per cent and 7.4 per cent in Europe.
Inflation here has hit levels not seen in 30 years. As of June, inflation was at 7.3 per cent - the highest since 1990, driven by rising rents, construction costs and fuel prices.
The World Bank has recently rated New Zealand as one of the top 10 most expensive countries to live in.
Phillip Benedetti, partner and managing director of Boston Consulting Group, said it was no surprise that there had been such a drop in consumer confidence among Kiwis given the inflationary environment.
"Even though it is very high in New Zealand, it is not as high as the comparative countries, so the interesting insight for us was just how concerned New Zealanders were comparative to Americans despite the inflation there being higher.
"If you look at the anxiety around Covid, the only country to have similar levels of concern [as New Zealand] are India and China. Other countries such as the US, UK and other European nations, there is much less concern around the impact of Covid on the economy and their willingness to actually go out and live what I would call a pre-Covid normal life," Benedetti told the Herald.
Phillip Benedetti, managing director and partner of Boston Consulting Group. Photo / Supplied
Hospitality, fashion and luxury retail are at greatest risk of a pull back in spending, with women's clothing, dining, fashion accessories and luxury brands the top categories respondents say they expected to spend less on in coming months.
The exception in the trend in decreasing spending was on non-essential leisure travel - with 18 per cent of those surveyed saying they expect to spend more in this area.
This was found to be the largest expected travel increase across all countries surveyed.
"New Zealand consumers are expecting to increase their spending on travel over the next year, which is a good sign that we're not going into massive defensive positions. I think [overall] there is going to be an increased focused on 'is this spend really necessary'."
Consumers in other western markets are not tightening their spending to the same degree as Kiwis, the survey found.
Ninety per cent of New Zealand consumers are worried about the rise in goods and services costs, and three quarters of respondents are worried that the world will struggle with a long-term economic recession.
More than half of those surveyed say they expect the local economy to get worse over the next 12 months - and 60 per cent are worried about their personal finances as a result.
Benedetti said the survey showed New Zealanders were also concerned about the rising cost of food, and expected it to continue to rise into the future.
As long as inflation continued to rise at much faster rates than income, affordability would continue to be a significant concern, he said.
"As consumers tighten spending that can have knock on effects to the economy, where we will perhaps won't see as much growth as we'd like," said Benedetti.
"Inflation is rising much faster than income for consumers, as that gap continues there is a significant concern about affordability and consumers being able to spend as they used to."
