Higher pump prices squeeze household budgets as ASB flags a slow recovery ahead
New Zealand retail spending contracted for the first time in nearly two years in the June 2026 quarter, as fuel prices that spiked earlier in the year, linked to the Middle East conflict, continued to weigh on household budgets and forced consumers to cut back elsewhere.
Fuel price shock drives the downturn
Stats NZ figures show the total volume of retail sales fell 0.5% in the June quarter, reversing a 1% rise in the March quarter and marking the first quarterly decline since the September 2024 quarter.
Economic indicators spokesperson Michelle Feyen (pictured left) said the result reflected a stark divergence between spending values and volumes at the pump.
"Higher fuel prices drove a sharp increase in fuel retailing sales values in the June 2026 quarter," Feyen said. "However, once the effect of price changes is removed, fuel retailing recorded the largest fall in sales volumes of the industries measured."
ASB economist Yen Nguyen (pictured right) said the fall was broadly expected, though slightly sharper than the bank had forecast.
"Retail volume declined by 0.5%, a tad lower than our expectation (-0.3% q/q) but much weaker than the +0.2% q/q increase expected by the market consensus," Nguyen said in an ASB commentary.
Core retail volumes, which strip out the most volatile categories, proved more resilient, rising 0.7% for the quarter.
What it means for mortgage advisers
ASB flagged some downside risk to its 3.25% end-of-2026 OCR forecast as a result of softer consumer spending, though it still expects the Reserve Bank to complete a timely removal of monetary stimulus by year end.
Weaker discretionary spending, alongside an already subdued housing market, suggests both first-home buyers and property investors may continue to face a cautious lending and borrowing environment through the remainder of 2026.
Discretionary spending retreats as households tighten belts
The decline was concentrated in discretionary categories, with accommodation, food, and beverage services, and recreational goods all recording falls as squeezed households pulled back on non-essential purchases.
Fewer tourist arrivals over the quarter added further pressure, though ASB noted a weaker New Zealand dollar may have partly offset this by encouraging visitor spending.
Durables spending told a different story, continuing to support overall retail activity. Electrical and electronic goods rose a sizeable 9.2% quarter-on-quarter and 22.9% over the year, marking a third consecutive quarter of growth for the category, alongside gains in hardware and furniture. Motor vehicle spending fell, which ASB linked to consumers moving away from petrol vehicles as fuel costs climbed.
Recovery unlikely before 2027, ASB warns
Looking ahead, ASB does not expect conditions to improve quickly.
"We expect consumer spending to remain moderate over the second half of 2026, with a meaningful recovery unlikely before 2027," Nguyen said, adding that a shift back toward necessity spending is likely to become more pronounced as cost-of-living pressures persist.
Stay informed with the latest housing market trends and mortgage insights — subscribe to our free daily newsletter.
