New Zealand retail spending flatlines in May as living costs bite and rate hikes loom
New Zealand households are pulling back on spending, and the outlook for the rest of 2026 offers little relief.
Westpac New Zealand's latest Retail Spending Pulse, compiled by senior economist Satish Ranchhod (pictured), shows per-person retail spending on Westpac debit and credit cards fell 0.3% in May after adjusting for seasonal swings — and the longer-term picture is equally sobering, with spending effectively tracking sideways since January.
The macro backdrop explains why — Treasury's Budget 2026 forecasts put CPI peaking at 4% in the June quarter, well above the RBNZ's 1–3% target band, driven largely by the Iran conflict's impact on global oil prices.
Essentials in, discretionary out
The category-level detail reveals how households are adapting. Fuel spending eased as petrol prices pulled back slightly from post-conflict highs, but prices remain well above pre-Middle East war levels, providing only a partial reprieve for stretched budgets. Grocery spending also softened, with operators reporting that shoppers are cutting back on non-essential items in favour of everyday staples.
"Buyers have been spending less on 'nice to haves' in favour of essentials as cost-of-living pressures bite," the report said.
There were some bright spots — travel-related spending bounced back in May after a sharp fall the previous month, and restaurant and takeaway spending ticked up as lower fuel costs freed up a small amount of discretionary income. According to the report, "many hospitality operators have reported tough trading conditions," and spending on broader entertainment activities continued to soften.
Rate hikes ahead
For mortgage brokers, the most significant signal sits in the interest rate outlook. Ranchhod flags that the benefit many borrowers enjoyed from rolling off high fixed-rate mortgages onto lower ones is now fading — the interest rate savings on re-fixing are materially smaller than they were a year ago, and carded mortgage rates have been trending higher as inflation pressures build.
Standard fixed mortgage rates have already started moving — RBNZ B20 data shows the one-year rate rising to 5.26% in May from 5.22% in April, the two-year rate climbing to 5.69%, and the five-year rate reaching 6.24% — extending a trend that began in January.
The RBNZ has signalled one 25-basis-point increase before September and a further rise before December, which would leave the OCR at 2.75% by year end. Westpac's own internal forecast goes further than the RBNZ's signalled path, pencilling in three hikes by year end to approximately 3%.
The report states: "We've pencilled in the first hike for September, but there is a risk of an earlier start in July depending on the evolution of economic data" — a timeline that will directly affect borrowers currently weighing fixed versus floating decisions.
Regional picture
Not all regions are under the same pressure. Canterbury, Otago, and Southland are outperforming, with strong commodity export prices — particularly dairy — providing a meaningful buffer against the headwinds facing other parts of the country. At the other end of the spectrum, Gisborne and Hawke's Bay are under additional pressure following severe weather disruptions, while Auckland and Wellington are reflecting softness in their respective labour markets.
Westpac will release its consumer confidence report next week, which is expected to shed further light on how sentiment is tracking across the country.
See the full Westpac report here.
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