Sky-high bills handcuffing household spending – Kiwibank

Household spending patterns are shifting as essential costs surge, impacting discretionary purchases and signaling a potential slowdown in consumer activity. New data reveals a complex picture of consumer behavior, marked by increased spending on necessities and a pullback from non-essential items.

Spending Slowdown Amid Rising Costs

While December saw a modest increase in transactions – up 0.4% compared to the previous year – January experienced a significant drop, falling 2.7% below the 2025 monthly average and 2.3% compared to January of the prior year. This suggests a “hangover” effect following the holiday season, driven by persistent economic pressures.

Did You Know? Households are currently spending 36% more on utilities than they were a year ago.

Inflation and Disposable Income

The data indicates that consumers are spending more per shopping trip, even as the overall number of trips declines. This is directly linked to inflation, which continues to squeeze household budgets after “several years of tight budgets, elevated consumer prices, and expensive credit.” Despite interest rates being “significantly lower” than the previous year, the rising cost of essentials is offsetting any potential relief.

Sector-Specific Trends

The impact of these economic pressures isn’t uniform across all sectors. Clothing retailers are particularly affected, with spending on apparel showing a “persistent decline.” Conversely, demand for housing-related goods is strengthening, with trips to hardware stores up 6% year-on-year in December and spending increasing by over 30%.

Shifts are also apparent in dining habits. Consumers appear to be opting for more affordable options, with increased spending at restaurants but decreased visits to cafes. Café spending is up almost 9 percent, indicating that each visit is costing noticeably more. Takeaway spending is also declining.

Expert Insight: The increased spending on home improvement suggests households may be preparing for a potential improvement in the housing market, anticipating benefits from lower interest rates.

Labor Market Concerns and Future Outlook

Consumer confidence remains tethered to the labor market. The unemployment rate, currently at 5.4%, weighs heavily on spending decisions, even though underlying details of the labor market show some signs of strengthening. A soft housing market, where a significant portion of household wealth is tied, also contributes to caution.

However, economists anticipate a potential recovery in consumption as the broader economy improves. Improvements in the labor market and housing sector are expected to boost household confidence and spending. Any interest rate increases are not expected before 2027.

Frequently Asked Questions

What happened to consumer spending in January?

The number of transactions in January dropped 2.7% below the overall 2025 monthly average and was down 2.3% compared to January of the previous year.

Which sector is experiencing a particularly sharp decline in spending?

Clothing shops are being hit particularly hard, with spending on apparel in persistent decline.

What is happening with spending on housing-related goods?

Demand for housing-related goods is strengthening, with trips to hardware stores up 6% year-on-year in December and spending up just over 30%.

As economic conditions continue to evolve, will consumers prioritize essential spending over discretionary purchases, and what impact will this have on the broader economy?