Massive price jumps in household essentials, with some basics up 34 per cent, are forcing middle-income Kiwi families on to the breadline - and have swallowed up the extra funds from the Government's Working for Families scheme.
The latest consumers' price index showed a big rise in the cost of home basics in the past year.
There was a 4 per cent rise in the cost of food, a 6.9 per cent increase in electricity, a 10.6 per cent surge in gas and 8.5 per cent in water supply charges. The biggest hit was fruit, which shot up 34 per cent, followed by rubbish disposal, up 14 per cent.
Those costs will be passed on at cafes, hotels and bars, which will have to raise prices, said Hospitality Association chief executive Bruce Robertson.
Coupled with that is a 3 per cent rise in rents, while house prices have risen around 14 per cent in the past 12 months.
With the hike in the official cash rate last week pushing floating mortgage interest rates to around 10 per cent, ordinary Kiwis are struggling to cover the bills.
Ken Ogden, of Christian Assist Budgeting, said he has seen a 210 per cent increase in struggling families coming to see him, compared with last year.
Even the extra money from Working for Families hasn't helped.
Ogden said the money is being absorbed into mortgage and other debt costs.
The jump in costs has forced many families right back to square one.
"When [Working for Families] first came out our phone stopped ringing. But now that's been built in and they've borrowed against it and they've used it for housing. Then their son or daughter leaves home and their entitlement drops. They're committed to using that money and they've got problems. I've been a lot busier since Christmas than I was last year."
Ogden said it's not just low-income earners failing to meet the payments. It's mainly homeowners who have committed themselves to high mortgage repayments who can't afford the higher food costs and power bills, which is putting pressure on families.
"Because of the high costs, family stress is coming on to them. They say, 'how can we carry on, can we carry on'? They've bought houses and three years down the track they're struggling, and the pressure's on. It's a long-term build up. They've bought the place and they've got to do it."
Despite the higher costs, Working for Families has meant it may be better for some families to live off only one income. Ogden said the income cut-offs for funding mean families are sometimes better off if one parent stops working and they receive more government funding. It also helps reduce stress on family relationships.
"Sometimes you have to ask whether two incomes are better. When you have a double income you don't get [paid] as much accommodation costs, and with family packages you're not entitled to as much. It depends on where the interest breaks are," said Ogden.
Westpac economist Doug Steel said the price rises in essentials will be hard for families to take, with luxuries the first thing to be cut .
"It's very hard to move away from those things. You have to eat, you have to have a roof over your head and you have to keep yourself warm. People will have to tighten their belts. What we tend to find is the luxury items tend to go first. The plasma TV gets put on hold and the next car upgrade is going to be later, but one will still buy potatoes because you've got to eat."
Steel said low-income families on a fixed wage will struggle the most.
"From a low-income point of view, you are copping it in a lot of areas you can't substitute away from, with food prices, gas and rents going up. It comes a bit on the chin."
Steel said it's not all bad news. Clothing and furniture costs are falling and with a strong labour market wages are rising and workers are in a good negotiating position. He said it's an ideal time to ask for a pay rise or shop around for a better paying job.
"It's the best time to go to the boss and say maybe it's time for a review. And they may well be willing to accept it. With the labour market strong you've got job security that will underpin a reasonable amount of spending."
For those who don't get extra income, the next few months will be a real struggle, said Ogden. Any change in their fortunes, especially if a parent loses their job, will cause real problems. If the economy takes a downturn Ogden reckons he will see an even bigger surge in clients.
"My own gut experience, in doing this for years is, if anything goes, boy it'll go. That scares me because people are so locked in and relying on the extra funds the Government's putting in. If something changed, it wouldn't take much to tumble it."