NZ retail spending remains sluggish despite lower mortgage rates

New Zealand’s retail card spending lifted slightly in October, but economists say the underlying picture remains weak – and that softer demand reinforces expectations of another Reserve Bank (RBNZ) rate cut later this month.

Retail card spending rose 0.2% in October following September’s 0.5% fall, leaving annual growth at just 0.8%, according to the latest Westpac and ASB analyses.

Essentials drive spending while discretionary categories weaken

Westpac senior economist Satish Ranchhod (pictured left) said October’s result was marginally softer than expected – and almost entirely driven by higher grocery spending.

“October’s gain was almost entirely related to increased spending on groceries,” Ranchhod said. “And with prices continuing to rise for many essential food items, that’s not really an indication that households are feeling more upbeat.”

Discretionary categories remained under pressure, with card spending falling in:

• furnishings (-0.1%)
• apparel (-0.6%)
• hospitality (-1.4%)

“Recent months had seen spending in those categories starting to rise, but that momentum has not been sustained,” Ranchhod said.

Lower mortgage rates not yet translating into stronger demand

Despite more borrowers rolling onto lower mortgage rates, households remain cautious, particularly amid a soft labour market.

“This will be a disappointing result for the RBNZ,” Ranchhod said. “Households are still reluctant to spend (using cards anyway), with softness in the jobs market likely an important factor weighing on spending appetites.”

Westpac continues to expect a 25-basis-point OCR cut on 26 November.

ASB: Core spending slightly stronger, but inflation still squeezing budgets

ASB senior economist Jane Turner (pictured right) said the overall trend remains flat, even as core retail spending (excluding fuel and motor vehicles) rose 0.2% in October and 1.4% over the year.

However, Turner noted that most of the lift came from spending on consumables rather than true discretionary activity.

“While labour income growth has started to lift, much of this improvement has been offset by annual inflation – the rising cost of living continues (to) squeeze out discretionary spending,” she said.

Hospitality spending dropped 1.4%, reversing recent gains likely driven by overseas visitors.

Durables – a key indicator of domestic demand – fell another 0.1% after September’s sharp 0.9% decline. Turner said household demand dipped in Q3, but expects this to be temporary.

“As lower mortgage rates are locked in, we do expect to see a lift in discretionary spending,” Turner said. “There are some encouraging signs within the consumer confidence survey data to suggest household finances relative to a year-ago are starting to improve.”

Outlook: Temporary pause before OCR cuts lift activity

Both banks agree that:

• The labour market remains soft,
• High living costs continue to divert spending toward essentials
• Lower mortgage rates have not yet fully flowed through to household budgets

Turner said a stabilising jobs market and further OCR reductions should support a gradual improvement in spending through 2026.

“We expect one more 25 basis point OCR cut in November,” she said, adding that risks “are skewed to another cut early next year if data continue to show a muted pace of economic recovery".

What mortgage advisers should watch

Economists see lower mortgage rates, not current retail data, as the key driver of the spending outlook heading into summer.

For advisers, the data confirms:

• Borrowers remain cautious despite rate relief
• Discretionary spending may lift as more households refix at lower rates
• OCR cuts still appear likely, supporting affordability and demand into early 2026

This reinforces a slow but improving household demand environment, important for refinancing conversations and borrower budgeting ahead of Christmas.

Read the Westpac and ASB reports for more insights.

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