Independent economist Tony Alexander’s has released his monthly Spending Plans Survey, which shows that more Kiwis plan to cut back their expenditure on the back of soaring interest rates and cost of living pressures.
A net 15% of survey respondents plan to cut consumption spending over the next 3 to 6 months. This is a deterioration from last month’s net 11% but is an improvement on the record net 27% decline in July:
Discretionary spending intentions worsened in September, whereas inflation drove up intentions to spend on necessities:
Advertisement
Spending plans worsened for almost all categories with greatest weakness in plans for eating out, technology, and purchasing furniture and appliances.
In contrast a net 19% of people said they plan spending more on groceries – but of course this is an involuntary increase reflecting the higher cost of living rather than desires to purchase more flour and sugar.
The cutbacks in spending are being driven by concerns around the economy, already having what one needs, and the desire to pay down debt amid rising interest rates:
Advertisement
Falling wealth from declining property and share prices is also acting as a headwind for consumption:
The Reserve Bank of New Zealand (RBNZ) last week lifted the official cash rate another 0.5% – the fifth straight ‘double’ hike. The RBNZ also indicated that more aggressive rate hikes are incoming:
Advertisement
Committee members agreed that monetary conditions needed to continue to tighten until they are confident there is sufficient restraint on spending to bring inflation back within its 1-3 percent per annum target range. The Committee remains resolute in achieving the Monetary Policy Remit.
To add insult to injury, most Kiwi borrowers are on fixed rate mortgages of two years or less. Accordingly, most households that originated mortgages at rock-bottom pandemic rates are yet to be impacted by the RBNZ’s aggressive monetary tightening.
This situation will change at the end of this year when these fixed rate mortgage terms start to expire. Thousands of Kiwi borrowers will soon be required to reset to materially higher (perhaps double) mortgage rates, which will slash their disposable income and crimp their spending.
Advertisement
That is when the full impact of the RBNZ’s aggressive monetary tightening will hit Kiwi households and the economy.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
