Independent economist Tony Alexander’s has released his monthly Spending Plans Survey, which shows that more Kiwis intend to cut back on spending in response to soaring mortgage rates and cost of living pressures.
A net 28% of survey respondents plan to cut consumption spending over the next 3 to 6 months, which is a sharp deterioration from 15% the previous month and the most negative result on record.
This is the most negative result since our survey started in June 2020 and signals that further pain lies ahead for retailers throughout the country as the Reserve Bank fights inflation with high interest rates.
The only area where Kiwi households expect to spend significantly more is groceries, which reflects soaring inflation:
By contrast, discretionary spending on things like eating out, technology and furniture has been decimated.
Reflecting the sharp rise in mortgage rates, Kiwi households expect to spend significantly less on a dwelling to live in:
The top three reasons for cutting back on spending are: 1) having what one needs already; 2) worries about the future, and 3) getting debt down:
In particular, plans for getting debt down have risen noticeably in this survey:
Kiwis also expect to get poorer:
And net confidence in the future has eroded:
The Reserve Bank of New Zealand (RBNZ) is widely expected to lift the official cash rate another 0.5%, with a 0.75% hike possible.
To add further insult to injury, the majority of Kiwi borrowers are on fixed rate mortgages of two years or less. Thus, most households that originated mortgages at rock-bottom pandemic rates have yet to be impacted by the RBNZ’s aggressive monetary tightening.
This situation will change next year when these fixed rate mortgage terms begin expiring en masse. Thousands of Kiwi borrowers will soon be reset at significantly higher (perhaps double) mortgage rates, which will slash their disposable income and supress their spending.
This is when the full impact of the RBNZ’s monetary tightening will fully hit Kiwi households and the economy, with a consumer-led recession a distinct possibility.
