New Zealand households are facing a tightening squeeze on disposable income as soaring utility bills offset modest gains in spending, according to recent data from Kiwibank. While overall spending showed a slight uptick in December, a marked decline in January suggests consumers are increasingly prioritizing essential expenses over discretionary purchases.
Kiwibank’s electronic card data reveals a concerning trend: a 2.7% drop in transaction numbers in January compared to the 2025 monthly average, and a 2.3% decrease year-on-year. This indicates a pullback in consumer activity following the holiday period. Despite the reduced volume of transactions, the total amount spent increased by 3.7% in January, signaling that consumers are spending more per trip, driven largely by inflation.
“Inflation has picked up over the past year, and many households are still feeling the squeeze after several years of tight budgets, elevated consumer prices, and expensive credit,” explained Kiwibank economist Sabrina Delgado. “So it’s no surprise we’re still seeing fewer shopping trips with more spent per trip.”
The most significant driver of this financial pressure is the dramatic increase in utility costs. Households are now spending 36% more on utilities – encompassing energy, water, and council rates – than they were a year ago. This substantial rise is consuming a significant portion of disposable income, leaving less available for non-essential items.
“That’s taking a big chunk out of disposable incomes. It means that we have less to spend in other areas because utilities are essentials. We have to pay them,” Delgado stated.
The impact of these rising costs is particularly evident in the retail sector, with clothing and apparel experiencing a persistent decline in sales. This suggests consumers are cutting back on discretionary spending to accommodate higher essential bills. Early February data indicates this trend may be continuing, with transaction volumes currently tracking 4.3% lower than the same period last year.
However, the picture isn’t entirely bleak. While overall retail spending is down, Kiwibank’s data shows a shift in consumer behavior. Spending on dining out has remained relatively stable, while spending at cafes has decreased. Interestingly, while the number of café visits has fallen, the amount spent per visit has increased by almost 9%, suggesting consumers are still indulging in occasional treats but are facing higher prices when they do.
A notable bright spot in the data is the strengthening demand for housing-related goods. Transactions at hardware stores rose 6% year-on-year in December, with spending increasing by over 30%. This suggests a growing confidence in the housing market and a willingness among homeowners to invest in renovations and maintenance.
“Overall the lift in housing-related spend offers an encouraging sign for the housing market. The need for a fresh lick of paint or new furniture is often suggestive of increased housing market turnover. To us, the data signals that households are getting ready for a better year for the housing market. And we expect it will be with interest rates in their low ranges,” Delgado noted.
Despite lower interest rates compared to the previous year, the overall economic climate continues to weigh on consumer confidence. Concerns about the labor market, with unemployment currently at 5.4%, are contributing to a cautious approach to spending. Consumers are sensitive to headlines regarding unemployment rates, and job insecurity is prompting them to hold back on discretionary purchases.
“If they see that that’s rising, that job insecurity weighs on that confidence to be splurging a bit more right now,” Delgado explained.
The softness of the housing market also plays a role, as a significant portion of household wealth is tied up in property values. While the data suggests a potential recovery in the housing market, the current uncertainty continues to dampen consumer sentiment.
Looking ahead, Kiwibank economists anticipate a gradual recovery in consumer spending as the broader economy improves. They expect the labor market and housing market to strengthen, which should boost household confidence and encourage increased spending. However, they advise against any interest rate hikes until 2027, given the current economic pressures facing households.
The data underscores a clear pattern: New Zealand consumers are prioritizing essential spending, particularly on utilities, at the expense of discretionary purchases. While We find signs of resilience in certain sectors, such as housing-related goods, the overall outlook remains cautious as households navigate a challenging economic environment.
