Inflation and rising interest rates look set to hit households hard and lower economic growth levels across 2022, according to new reports from ASB and ANZ economists.
ASB economist Mark Smith has crunched the numbers and estimates inflation is likely to add $150 a week to living costs for the average household.
"Our work suggests higher consumer prices and debt servicing costs could raise household weekly outgoings by an average of around $150 per week over 2022," Smith says.
But the impacts will be highly uneven, he says.
"With borrowing costs set to move higher still, increases could be much more than this for more heavily-indebted households."
Meanwhile, ANZ economists have downgraded the bank's outlook for GDP growth in 2022 - from 2.4 per cent to 2.1 per cent.
"All up, the cold hard reality is that high inflation will hurt households and businesses, and so too will rising interest rates," said ANZ senior economist Miles Workman.
The need to lift rates as the economy slowed would make for a tougher economy and "risks of a hard landing are very high", he said.
To estimate the cashflow impact of inflation ASB used the StatsNZ New Zealand household economic survey, which records what households typically spend each week.
The last survey was done in the March 2019 year, but ASB has updated the figures to reflect more recent spending patterns using a combination of consumer spending and consumer price data.
The $150 average equates to an extra $15 billion per annum or equivalent to 7 per cent of household disposable incomes.
The increase was based on expectations that food prices will increase another 6-7 per cent this year due to record high commodity prices.
Transport costs will also continue to rise.
"Cuts to fuel excise, road user charges and public transport fares will provide a temporary respite," Smith said. "Transport costs as a whole are expected to increase roughly 8 per cent over 2022."
The price of consumer goods was also facing upward pressure as the war in Ukraine continued to extend supply chain disruptions, he said.
The economic impact of the higher living costs would mean consumer spending is unlikely to be as robust or as resilient as it was in 2021, Smith said.
"Discretionary spending could be significantly cut back with more economising on essential spending. This may temper the extent of RBNZ hikes required and we expect an OCR endpoint of 2.75 per cent this cycle."
But ANZ economists are more hawkish on the need to hike rates.
"If inflation is not contained fast enough with monetary tightening, the RBNZ will likely need to act even more aggressively later on – with an even more difficult job to do," Workman said.
"In short, recession risks are no longer a good reason for the RBNZ to hike gradually."