Chart of the Month: Consumer confidence woes

Consumer confidence plummeted to an all-time low in March 2022 in response to the ongoing uncertainty of New Zealand’s economic outlook. Households are being squeezed by rising living and credit costs, and these costs are expected to continue increasing for the foreseeable future.

What does the future hold for New Zealand households?

Consumer confidence is at its lowest. The ANZ Roy Morgan Consumer Confidence index continued to fall to 77.9 in March 2022, which was even lower than the depths of the 2008 Global Financial Crisis, where the index fell to 83.9 at its lowest.

Stats NZ data shows retail electronic card spending fell 1.3% (sa) and consumables electronic card spending fell 3.3% (sa) in March as inflation and interest rate rises forced households to reconsider their budgets. Some Kiwis may have been further spooked by the performance of the property market in recent months. According to REINZ, the national average house price fell 2.0% (sa) in March, the fourth consecutive month of price falls.

Consumers are understandably uncertain about their future, but what do the Reserve Bank – as the institution charged with controlling inflation and setting interest rates – predict? In short, they foresee an extended period of higher inflation and several years of interest rate hikes. Their latest Monetary Policy Statement in February 2022 forecast inflation will remain above the target midpoint of 2.0%pa until the first quarter of 2025. More immediately, they predict that during 2022, annual inflation will slowly fall from 6.6%pa to 4.1%pa. In terms of interest rates, the Reserve Bank forecasts consistent increases in the Official Cash Rate until it reaches 3.4% in September 2024, predicting that it will reach 2.2% by the end of this year. We expect the Reserve Bank will need to go further, quicker.

So, is the pessimism that has infiltrated the Kiwi consciousness warranted? Households are right, there will be continued pressures on their budgets for the next few years. However, tighter household budgets should reduce demand, which will dampen inflation down the line. Until the stretched New Zealand economy recovers, Kiwis will have to adapt to the reality of inflation eroding the real value of their assets and wages, and interest repayments eating away at their disposable income.

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