Rising Bills Squeeze NZ Household Spending: Kiwibank Data

New Zealand households are increasingly curtailing discretionary spending as soaring utility bills erode disposable income, according to recent data released by Kiwibank. The trend, particularly impacting sectors like fashion retail, signals a tightening squeeze on household budgets despite a modest easing of interest rates.

Kiwibank economist Sabrina Delgado reported a 36 percent increase in utility costs for the months of December and January compared to the same period last year. This surge is forcing consumers to prioritize essential spending, 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 on consumer behavior is becoming increasingly visible. While the number of transactions in December saw a slight increase of 0.4 percent compared to 2025, January experienced a 2.7 percent drop below the overall 2025 monthly average. Transaction volumes were down 2.3 percent year-on-year in January. This indicates a shift in spending patterns, with consumers making fewer shopping trips overall.

Interestingly, the total amount spent increased by 8.6 percent in December and 3.7 percent in January. This suggests that while consumers are shopping less frequently, they are spending more per trip, a direct consequence of rising prices and persistent 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. So it’s no surprise we’re still seeing fewer shopping trips with more spent per trip,” Delgado explained.

Despite interest rates being lower than the previous year, the escalating cost of living continues to exert pressure on household finances. The data for February, extending to just after Waitangi weekend, currently shows transaction volumes approximately 4.3 percent lower than the same period last year, suggesting the trend of reduced consumer spending may continue. However, Delgado cautioned that it may be too soon to draw firm conclusions for February, noting that a late-month pickup could significantly alter the final outcome.

The shift in consumer behavior is also evident in specific spending categories. While visits to cafes have decreased, the amount spent at those establishments has risen nearly 9 percent, indicating higher prices for each visit. Takeaway spending is also on a steady decline, suggesting consumers are cutting back on convenience purchases. Consumers appear to be making trade-offs, reducing frequency of visits but accepting higher costs when they do indulge.

However, not all sectors are experiencing a downturn. Demand for housing-related goods is strengthening, with trips to hardware stores up 6% year-on-year in December and dollars spent increasing by over 30%. This suggests a potential revival in the housing market, as homeowners prepare for renovations or upgrades. “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.

Underlying these spending patterns is a degree of consumer anxiety regarding the labor market. Despite some signs of strengthening in the underlying labor market details, the headline unemployment rate remains a key concern for households. “Unemployment is at 5.4%. Even though we’ve seen the underlying details in the labour market showing some signs of strengthening, the average household only looks at that headline unemployment rate. If they see that that’s rising, that job insecurity weighs on that confidence to be splurging a bit more right now,” Delgado said.

The softness of the housing market also plays a role, as a significant portion of household wealth is tied up in property values. A stagnant housing market limits the ability of homeowners to access equity or feel financially secure enough to increase spending.

Looking ahead, Delgado anticipates a recovery in consumption as the broader economy improves. She expects that improvements in the labor market and a strengthening housing market will boost consumer confidence and lead to increased spending. However, she believes that any interest rate rises should be postponed until 2027, to avoid further dampening consumer sentiment.