ASB economists are warning the cost of living crisis means households will need to find an extra $110 per week to keep up in the next 12 months.
The daunting figure is an average which includes impacts of inflation and higher interest rates.
That means people with higher debt levels are likely to bear the brunt of the pain, ASB says.
On the plus side, the tight labour market and rising wages are likely to offset some of the pain and keep the economy buoyant.
"All up, household weekly outgoings look set to rise by roughly $110 per week over the next 12 months or so, although exposures will vary," said ASB senior economist Mark Smith.
"Large borrowers are expected to be particularly exposed, but the household sector in general looks to be well placed to handle higher debt-servicing costs."
ASB is forecasting the Official Cash Rate to rise from its current level at three per cent, to 4.25 per cent by early next year.
That means retail mortgage rates probably have further to rise from current levels.
Many New Zealanders on fixed rates will also roll on to new higher rates in the coming months which will add to the cost pressure.
Yesterday the ANZ bank lifted its one and two-year fixed rates in response to market moves pricing in higher expectations for OCR hikes.
On balance the rising costs are likely to cause households to reduce spending, Smith said.
However, strong wage growth was helping.
"We have also been surprised with how quickly household incomes have climbed,
with increases in after-tax incomes expected to modestly exceed the surging cost of living," he said.
Household incomes had risen by around $100 per week in the year to June 2022.
"We expect household incomes to post more sizeable increases in the next couple of years, largely reflecting sizeable increases in wages and salaries and the expected rebound in other incomes," Smith said.
"This should mean households in general should have sufficient funds to pay the bills and potentially increase consumer spending. However, the impacts will vary hugely
depending on the individual circumstances of households."
It was now likely that annual CPI inflation had peaked, he said.
But the shift from external cost pressure (things like petrol prices) to domestic drivers (like labour costs) was creating risk that inflation could stay strong for longer, he said.
"Assuming households maintain their current spending habits, more of the increases in living costs we expect are likely to be domestically-focused," he said.
"Of the approximate $110 weekly increase in household living costs in the June 2023 year, around two-thirds of those would either be non-tradeable goods/services or debt servicing."
Soaring consumer prices and deferred catch-up spending were likely to explain the surge in NZ consumer spending over 2021, Smith said.
"That surge is unlikely to be sustained given a limited buffer on current spending, the sharp slowdown in population growth, slowing residential construction activity and a housing market still trying to find its feet."
Growth rates for both consumer spending and disposable incomes were expected to slow, with the more gradual slowdown in the former expected to erode saving buffers.
"Consumers have kept the economy afloat in 2020 and 2021, but household spending looks set to play less of a driving role in 2022 and 2023."
All up, the analysis suggested that the outlook for household spending was not as dire as it looked last year when ASB flagged upside risks to the inflation outlook.
"The economy could continue to surprise with its resilience, adding to capacity pressures," Smith said.
"The wage inflation outlook is clearly stronger and in the absence of a labour productivity miracle there is limited scope for strong wage growth to be sustained without blowing an inflationary gasket."