A senior economist said while “massive” increases in food prices were squeezing everybody’s income, especially low-income households, and housing costs had risen rapidly, there were signs the pressure was easing off.
The Consumers Price Index (CPI) measures how inflation affects the country, but it does not include mortgage interest costs, one way Stats NZ measures the impact of inflation on different household groups using the HLPI.
The highest-spending households – often those with big mortgages – experienced the largest annual increase in the cost of living of all household groups at 8.7 per cent.
According to Stats NZ, in the year to March 2023, interest payments increased by 38 per cent for the average household. This is averaged over households who don’t have mortgages, suggesting an even larger increase in costs for households who do.
To measure the inflation faced by different household groups, the HLPI takes into account how different households spend money.
For example, over the period, rent made up almost 30 per cent of beneficiary household spending while interest payments made up 2.2 per cent of spending.
For the average household, rent costs made up 13.4 per cent and interest payments 4.7 per cent of spending.
Meanwhile, for the highest-spending households, rent made up 4.7 per cent of spending while interest payments made up 7.4 per cent of spending.
Each of the different household groups experienced an increase in costs the same as or higher than the official inflation rate.
Māori households
Māori households saw the second-biggest hike in inflation and spent the second-largest proportion on rent.
The group spent an average of 19.1 per cent on rent in the last year with lower home ownership than the average household in NZ.
While overall home ownership was at 66.5 per cent, Māori home ownership was at 44.6 per cent.
Stats NZ said the main drivers of rising household costs for Māori were interest payments, rent, grocery food, and fruit and vegetable price hikes.
Beneficiaries
Stats NZ consumer prices manager James Mitchell said individuals on a benefit saw higher prices for rent, interest payments and grocery food including eggs, cheese, fruit and vegetables.
Beneficiaries spent almost 30 per cent of their income on rent while the highest-spending households spent only about 5 per cent on rent in the June 2022 quarter.
Stats NZ said this group also saw a drop in transport prices as petrol prices fell. Beneficiaries also spend proportionately less on air travel, which has seen a price hike in the past year.
Lowest-spending households
While households with the lowest spending power faced a 6.9 per cent inflation hike in the past year, Stats NZ said the group was affected by rising prices for grocery food, rent, interest payments, and fruit and vegetables.
The group also saw interest costs rise 2 per cent in the past year and falling transport prices.
Westpac senior economist Satish Ranchhod said: “Food prices have risen by a massive 11 per cent, squeezing everyone’s income, especially for low-income households.”
Ranchhod said rent was adding pressure to these households: “Lower-income households are more likely to be renters than homeowners.”
He said renters have seen “large increases in the last year” and have been forced to find new accommodation after weather events this year.
Highest-spending households
Stats NZ found households that spend the most experienced the biggest hike in inflation, with interest payments up 38 per cent and inflation at 8.7 per cent overall.
The group spent proportionally more on interest payments than other household groups, Stats NZ said.
Ranchhod said interest costs have been rising sharply over the past few years.
“The big issue here is that 90 per cent of homeowners are on fixed mortgage rates so a lot of people have been insulated to date.”
He said this was now starting to change, however. “A large number of borrowers have rolled off low rates on to much higher rates.”
He said about half of all mortgage rates will roll over in the next 12 months, with average interest costs up 100 basis points in the past year and expected to rise a further 160 basis points in the next year.
Ranchhod said the increase in mortgage costs was the biggest inflation driver and would be “larger on average than food and other costs”.
He said that while food and housing costs have risen rapidly, “we’re starting to see signs the pressure is easing off”.
For the latest set of inflation figures, Ranchhod said, high interest rates have reduced consumer demand.
He added, however, that borrowing costs were still very high, so “households will be dealing with high living costs”.
Superannuitants
Inflation was at 7.1 per cent for individuals on superannuation with food and airfares driving inflation for the group.
Mitchell said the group was least affected by rising interest rates.
“Superannuitants are more likely to own their own home and own without a mortgage than other household groups,” he said.
Auckland Budgeting general manager Tim Maurice said: “People are struggling to make ends meet.
“People that were doing okay before are taking on debt to help cover costs, which is going to make things worse overall.”
Maurice said more low-income households are taking on debt with third-tier lenders to cover rising household costs.
“People are using buy-now, pay-later to buy clothes for their kids and using finance companies to help balance the books.”
He said debt was “huge” for low-income families, with some paying over $500 a fortnight to repay finance company loans.
At the same time, Maurice said, the pressure on people to spend money was “causing a lot of damage”.
He said low-income households were cutting costs in areas like entertainment where these groups are not spending much as it is. As a result, he said, these households were having to cut their spending on power and phone bills.
