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Consumer confidence has slipped to its lowest level in 18 months as the mounting costs of housing, food and petrol take their toll.
The Westpac McDermott Miller consumer confidence index dropped to 110 from 113.5 in September. Any reading above 100 represents more optimists than pessimists. But Westpac chief economist Brendan O'Donovan is surprised it has not fallen more in the face of such high mortgage rates and petrol at more than $1.70 a litre.
"We expected the economy to hit a bigger pothole in late 2007. Some data has been weak and consumer confidence has fallen, but not by much. It suggests that consumer spending will not slow by enough to ward off inflationary pressure."
Westpac expects the Reserve Bank to raise the official cash rate twice more next year.
The confidence index reflects consumers' answers to five questions. In the latest survey respondents were no less optimistic about their own finances than they had been in September. It was their view of the New Zealand economy's outlook five years out which drove the decline in overall sentiment.
It reversed a sharp rise in confidence about the longer-term outlook in the September survey.
"We have to go back to June 1990 to find a time when New Zealanders were this pessimistic about the long-run outlook," O'Donovan said.
"Back in September increased optimism about the next five years was probably driven by news about the dairy payout bonanza. The dairy story has since been shunted off the front pages by a deluge of bad news, both local and international."
Factors creating a sense of unease but not necessarily affecting consumers' finances directly could include the international credit crisis, rising global oil and food prices, concerns about climate change and local finance company collapses.
"Interestingly, follow-up questions in the survey showed that interest rates were not commonly cited as a reason for economic pessimism. The most common response was 'bad government policy'."
Declines in confidence were spread across all regions, except Canterbury, all age groups, all socio-economic groups and both sexes.
Urban Auckland saw steep declines in sentiment both in the latest quarter (when it fell 5.8 points outstripping a national fall of 3.5 points) and over the past year (down 15 per cent against 9.7 nationwide).
