Despite pessimistic consumer outlook, households continue to stay afloat
Households continue to struggle amidst the cost-of-living crisis, but signs pointed to brighter figures as the pace of cost increases were expected to be slow, according to ASB Bank’s 2024 Household Living Cost Outlook.
“The inflation outlook remains inherently uncertain, but we expect the pace of cost increases to progressively slow, both in absolute terms and relative to household incomes,” said Mark Smith (pictured), senior economist at ASB Bank.
“Cost movements will be uneven, with slowing increases for consumer goods but for still chunky rises in debt servicing and other consumer services.”
A sector afloat despite pessimistic sentiments
Households have seen a $115 weekly increase in costs for 2023, which is set to be followed by a $70 weekly increase in 2024, – the lowest seen since 2020.
“These figures are for the average household, with some having to pay less, but others more, particularly those with large debt exposures,” said Smith.
The household sector has continued to stay afloat even with warnings of impending doom and subdued consumer sentiments. The solid growth in household incomes as well as the build-up of household savings post-COVID have increased the buffer that was available to some households. However, others were not as fortunate and were still experiencing immense financial stress.
With a deteriorating labour market, policymakers also face the challenge of lowering inflation back to 2%.
“We don’t expect further OCR hikes but acknowledge that the RBNZ’s patience is wearing thin. Tangible progress will need to be made in lowering domestic inflation. While households do not set prices, their actions will have a tangible influence,” said Smith.
“The battle on inflation is not yet won and the RBNZ will be looking for restraint on the part of firms, consumers, and government to reduce inflationary pressure. If not, higher OCR settings may result.”