KEY POINTS:
The average household is spending almost $40 a week more than last year on necessities, including food, housing and petrol.
An ASB report, "Strapped for Cash", shows that despite a $200 rise in the average household income in the year to June, households feel no better off. This is because high prices for essential items, particularly food and fuel, chewed up most of the extra money people took home in their pay.
"Fuel prices were on a constant increase and supermarket discount dockets only got you the previous week's advertised fuel price," the report said. "Then dairy prices started to climb, with the staple student diet of cheese sandwiches becoming a luxury food."
High mortgage rates added to the pressure, making it a year when many households felt "extreme financial strain" and consumer confidence took a sharp dive.
Spending on necessities, including food, housing and petrol, rose 9.8 per cent, or almost $40 a week, and inflation on those items was up 7.4 per cent.
Not surprisingly, the biggest increase in spending was on petrol, which cost the average household $38 a week in June 2007, but $48 in June this year - a 16.6 per cent jump. But the fact that petrol prices climbed more than 25 per cent in the year showed households were cutting back on fuel consumption where they could, the report said. A 3.6 per cent rise in food spending indicated consumers were spending more on food but getting less for their money.
Under the Household Economic Survey, done every three years, food spending increased 6.9 per cent, and the report said the difference reflected the fact that shoppers had switched to home brands and cut back on discretionary items such as takeaways.
Increases in mortgage rates over the year saw a 6.3 per cent rise in the price of servicing debt, while average household earnings grew 6 per cent.
"The finance companies that have gone into receivership [to date] have lost an estimated $870 million of household savings ... A large amount of cash also remains tied up with finance companies in moratorium or suspended mortgage hedge funds, to the tune of $3.3 billion."
Affected households would now have to save more and consume less if they wished to return their nest eggs to their original value.
Consumer confidence was its lowest since 1991, but ASB chief economist Nick Tuffley said there was "light at the end of the tunnel".
Petrol and food prices were stabilising and mortgage rates would start to come down, while tax cuts in October would put almost an extra $20 a week in the average household's pocket.
