SUNGMI KIM/Things
Kiwibank economists warn that annual inflation is likely to hit 7% in the June quarter.
Consumer spending rose again in the June quarter, but Kiwibank economists warn that annual inflation may have reached 7%, up from 6.9% in the March quarter.
Kiwibank Household Spending Tracker for the June quarter showed that Kiwibank customers’ electronic card spending rose 7.1% in the quarter.
Chief economist Jarrod Kerr said the increase in spending was supported by the switch to the orange Covid traffic light, in time for the Easter holidays.
“The rise in consumer prices increases the value of transactions. However, the number of times Kiwis tap, swipe and place their cards is decreasing,” Kerr said.
READ MORE:
† Inflation skyrockets to 5.9%
† Prices are rising fastest in three decades: ‘We are tackling it from all sides’
† Heat on Reserve Bank to defend inflation target as cost of living rises nearly 5%
The growth in spending has outpaced the growth in the number of transactions, he said.
Kerr said inflation was likely to have risen further in the quarter, peaking at 7% year-on-year.
Consumer prices had risen rapidly, at the expense of household disposable income, making budgeting much more difficult, he said.
Homes used to be a lot cheaper, but in previous decades, interest rates on home loans were much higher. Home loan rates are on the rise, however, as Reserve Bank Te Pūtea Matua has raised official cash interest rates to fight inflation.
“As prices are expected to continue to rise in the near term, households will be forced to tighten their belts and shorten their shopping lists,” he said.
Kerr expected the Reserve Bank to raise official cash interest rates another four times this year to a peak of 3.5%.
“But there’s little doubt that a higher bill also puts pressure on discretionary spending.”
House prices were 6% lower than in November and Kerr expected a 10% cumulative decline by the end of the year.
“However, housing is the greatest form of wealth among Kiwis. But a cooling market, as it is today, is putting another damper on consumer spending,” he said.
Motorists drove less to the filling stations than in the previous quarter, a decrease of 7.5%. Instead, people opted for the cheaper alternative to public transport, with public transport spending increasing by 20.5%.
AP
Retail spending was up 5.9% in the past three months, with department store, clothing and footwear spending increased in mid-June.
Entertainment spending rose 61%, and the return of Maverick (Top Gun) to the big screen brought movie theaters back to life, with spending at the cinema and ticketing agencies growing 24.5% in June alone, Kerr said.
Household consumption was an important driver of the economic recovery. But rising prices and interest rates, and a contracting housing market, would erode discretionary spending by households.
Retail spending rose 5.9% in the quarter, moving higher in department stores and on apparel and footwear in mid-June, Kerr said.
Retail NZ’s June quarter Retail Radar report showed that rising operating costs such as wages and freight, staff shortages and a lack of foot traffic were putting pressure on retailers.
Greg Harford, CEO of Retail NZ, said industry-wide prices were up about 6% on average in the quarter, with a similar outlook for the September quarter.
More than half of retailers failed to meet their targets for the quarter, while 46 percent met or exceeded them, Harford said.
“Inflation has a significant impact and as a result, consumers can expect further price increases for products,” he said.
More than 70% of retailers raised prices in the quarter, with 81% saying they would do so in the next three months.