Confidence tumbles in face of rising costs

Consumer confidence has hit its lowest level in nearly six years under pressure from rising prices, higher interest rates and a slowing house market.

The Westpac McDermott Miller Consumer Confidence Index fell from 109.3 in the March quarter to 106 in the June quarter - its lowest level since September 2000.

Westpac chief economist Brendan O'Donovan said consumers were buckling under the repeated blows from rising petrol prices, higher interest rates, a falling currency and insipid economic growth.

"On top of this, the housing market has clearly lost much of its momentum, meaning that home owners are now more reluctant to extract equity from their homes," O'Donovan said.

"This swag of negatives point to an increasingly painful financial pinch for consumers."

Richard Miller, managing director of strategic planning consultancy McDermott Miller, said the survey signalled that people would hold back when shopping.

"Many expect prices will be going up, but have little money to spend to take advantage of shop sales in the mean time," Miller said.

"Flat retail sales seem likely to continue if not worsen over the next quarter."

An increase in the number of consumers feeling worse off than a year ago was the single biggest factor in the falling index, he said.

A net 4.6 per cent of respondents felt they were worse off financially compared to a year ago.

Future expectations also suffered; a net 10.2 per cent of people in the latest survey expected to be better off in a year's time, down from 13.2 per cent in March, and from last year's average of 16.3 per cent.

"More people are feeling worse off now than at any time since September 2000," Miller said.

"The main reason given for the deterioration is costs, particularly petrol prices, outstripping any increase in their income."

Rural consumers were also less confident than in the previous quarter, despite a weaker currency pointing to an improvement in rural incomes.

The economic boost from a weaker currency was unlikely to be felt before next year, O'Donovan said.

"Until then economic conditions are expected to further test consumers' willingness to prop up the economy," he said.

"In particular a softer housing market will see increased reluctance to fund consumption out of housing wealth, with the risk of further deceleration in growth."

Confidence fell in seven of the 11 regional councils. For the first time since September 2000, three regions - Southland, Bay of Plenty and Nelson Marlborough/West Coast - recorded indices below 100, indicating more pessimists than optimists.

People viewed the prospect of more currency corrections - making imports more expensive - as less of a reason to buy now.

"There is an increasing body of evidence that they are looking at the big expenditure items, like the overseas holiday or the plasma TV, advertised in the shop window and walking straight on by," O'Donovan said.

The survey has a margin of error of up to plus or minus 2.5 per cent and was drawn from 1559 interviews conducted in June.