Praneeta Mahajan
Hamilton, August 15, 2023
Retail card spending was flat in July, as per the report issued by ASB Bank recently. The report highlighted how households across New Zealand are being squeezed by the elevated cost of living and higher interest rates.
“This backdrop is unlikely to change any time soon and we expect consumer spending will remain weak over the remainder of 2023. The high cost of living means households are spending a greater proportion of their budgets on essentials, with little left over for discretionary spending,” said an ASB Bank spokesperson.
Services spending, for example, which includes repairs and maintenance and personal care fell 3% over the month. Moreover, still-high inflation suggests that the pullback in consumer spending currently underway is more pronounced than the headline ECT values suggest.
Still some support
Strong population growth thanks to high levels of net migration is a tailwind for consumption and the housing market and will help to prop up aggregate spending, even if per capita levels continue to decline.
Retail electronic card spending was unchanged in July in seasonally-adjusted terms, largely in line with our forecast. Core spending (which excludes fuel and vehicle spending) eased 0.1% over the month while total retail spending (including non-retail and services) fell 0.9%.
Falls recorded in five categories
The fall in core spending was driven by a 0.5% fall in durables spending. Tight household budgets suggest that consumers are foregoing upgrades to furniture and appliances. The still-muted housing market also remains a headwind to durables. Meanwhile, consumables rose 0.9% suggesting that consumers are focussing their spending on necessities.
Fuel spending tumbled 5.5%, following a 2.2% mom lift in June as motorists filled up ahead of the resumption of the full fuel excise tax on July 1, 2023. The restraint at the pump in July was especially evident given fuel prices jumped 13% in July thanks in part to the fuel tax increase.
Non-retail spending (which includes health care and travel) fell 3.6% in the month. “We are likely seeing signs that household budget constraints are sapping the ability for households to spend on areas like travel, even if the desire to do so post-pandemic remains intact,” stated the report.
Services spending (which includes repair and maintenance, personal care and other personal services) also fell by 2.9%. Once again, weak spending on services likely reflects the fact that consumers are increasingly bunkering down as living costs continue to bite.
Prediction on the trend
Muted consumer backdrop is likely to continue into 2024, as households are undoubtedly feeling the pinch while prices continue to rise and the RBNZ’s hefty 525bps of tightening works its way through the system.
However, there are some bright spots and strong net migration will help to put a floor under consumer spending. The housing market could also provide some support to consumer spending if it has reached a trough as we suspect.
“Much like our GDP forecasts, whether or not strong population growth stems falls in aggregate spending, per-capita spending will remain weak over 2023. Nevertheless, we expect the RBNZ will be relieved to see the consumer demand balloon continuing to deflate. And a slowdown in consumer spending is consistent with our view that the current 5.5% OCR is likely to be the peak. But inflation is still high and, as a result, it is too premature to be thinking about OCR cuts,” clarified the report.
Praneeta Mahajan is an Indian Newslink reporter based in Hamilton.
