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Modern Zealand households are significantly reducing discretionary spending as utility bills surge, according to recent data released by Kiwibank. The trend, impacting retail sectors like fashion, suggests a tightening squeeze on disposable incomes despite a slight easing of interest rates.
Kiwibank economist Sabrina Delgado reported a 36 percent increase in utility costs for December and January compared to the same period last year. This rise 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.
While the number of transactions in December saw a modest increase of 0.4 percent compared to 2025, January experienced a 2.7 percent drop below the monthly average. Transaction volumes were down 2.3 percent year-on-year in January. The total amount spent increased by 8.6 percent in December and 3.7 percent in January, indicating consumers are making fewer purchases but spending more per trip, driven by inflation.
Delgado noted that despite interest rates being lower than the previous year, the escalating cost of living continues to pressure household budgets. 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.
Spending patterns reveal a shift in consumer behavior. 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 declining. Conversely, demand for housing-related goods is strengthening, with trips to hardware stores up 6 percent year-on-year in December and spending increasing by over 30 percent. Delgado suggested this increase signals a potential recovery in the housing market, fueled by lower interest rates.
Concerns about the labor market are also influencing consumer confidence. Despite some positive signals in labor market details, households remain focused on the headline unemployment rate, currently at 5.4 percent. “If they see that that’s rising, that job insecurity weighs on that confidence to be splurging a bit more right now,” Delgado explained.
Delgado, who joined the Kiwibank economics team in 2023, has a background in exploring macroeconomic trends and their impact on New Zealand businesses and households. She is currently completing her master’s degree in economics part-time, building on a conjoint BBus/BA in economics and social policy from Massey University. She anticipates a recovery in consumption later in the year as the broader economy improves, with expectations of improvements in both the labor market and the housing sector.
Delgado indicated that any further interest rate adjustments should be delayed until 2027.
