Falling rates lift savings, but demand still cautious
New Zealand households are tightening their belts, cutting back on discretionary purchases and focusing on essentials as inflation and tight financial conditions continue to squeeze budgets – but early signs of recovery are emerging in housing-related spending, according to fresh data from Kiwibank and ASB.
Households prioritise essentials amid tight financial conditions
Kiwibank’s Household Spending Tracker for the September quarter shows total electronic card spending up 5.6% compared to last year, though the number of transactions fell 5.2%, highlighting the ongoing impact of high prices on consumption.
Kiwibank senior economist Mary Jo Vergara (pictured left) said households are “clearly prioritising costlier essential goods and services over durables – despite the discounted prices.”
“Financial conditions have been tight, with high consumer prices and expensive credit,” Vergara said. “Household disposable incomes have been squeezed. And as households have cut back on spending, it’s been discretionary items culled first.”
Trips to the supermarket were up 5% year-on-year, but “trolley carts are 11.2% more expensive,” the report found. The value of household utility payments jumped 19.3%, reflecting higher council rates and power bills, while hospitality spending edged up modestly – 5.5% at cafés and 3.4% at restaurants – as rising food prices filtered through.
Retail and travel spending remain weak
Despite widespread discounting, retail spending remains subdued. Clothing and footwear sales fell 4.1% in value and 6.1% by volume.
“Retailers remain optimistic for a pickup in activity over the fast-approaching holiday season,” Vergara said. “Major upcoming spending festivities, from Black Friday and Cyber Monday to Christmas and Boxing Day, are no doubt fueling these hopes.”
Travel activity remains patchy. The volume of flight bookings fell 10.3%, while hotel and accommodation spending lifted 13.7% compared to last year – more a reflection of weak 2024 demand than a strong revival in discretionary travel.
Housing spend and savings showing signs of life
One bright spot is housing-related spending.
“Demand for housing-related goods appears to be improving,” Vergara said, with home furnishing spending up 3%, home electronics up 6.9%, and renovation spend up 3.8% from a year earlier.
“The housing market has been laying dormant for some time now,” she said. “But interest rates are heading lower, towards levels that should breathe new life into the market.”
At the same time, household savings are rebounding as debt servicing costs fall. Savings rose $804 million in the June quarter, while interest repayments dropped 4.9% from their late-2024 peak.
“Supported by a gradual decline in interest repayments, household savings have lifted for the past three quarters,” Vergara said. “It’s a trend we expect will continue to improve as households roll onto lower rates.”
ASB: Spending recovery stalling but relief in sight
ASB senior economist Jane Turner (pictured right) said national retail card spending data suggests the recovery in household demand may have “started to run out of steam.”
“Total retail card spending (seasonally adjusted) decreased by 0.5% in September, largely unwinding the previous month’s lift,” Turner said. “Durables spending was particularly weak, with the 0.8% fall in September more than unwinding the previous month’s 0.5% gain.”
Turner noted that durable goods spending “often moves with the housing construction cycle and house sales,” adding that the slowdown aligns with weaker housing turnover.
Still, she said the hospitality sector was a “bright spot,” with spending up 1.5% in September, supported by increased visitor arrivals from Australia.
Outlook: Rate cuts to boost disposable income
Both banks expect easing financial conditions to gradually support a rebound in consumer and housing activity through summer and into 2026.
“The recent falls in interest rates should help free up disposable incomes and support a recovery in consumption.” Vergara said.
Turner agreed that falling mortgage rates and the Reserve Bank’s aggressive rate cuts – including a 50 basis-point reduction in October – will help boost household demand.
“As households start to refix mortgage rates over the coming months, we should see a boost to discretionary spending,” she said. “However, a turnaround in the labour market is also key to see a more sustainable momentum in retail spending over 2026.”
Key takeaway for advisers
For mortgage advisers, the reports suggest that lower rates, improving savings, and tentative recovery in housing spend are setting the stage for renewed buyer confidence – though the broader spending recovery still hinges on income growth and job security.
Read the full Kiwibank and ASB reports for more insights.
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