Cost of living for average household increasing faster than official inflation

The cost of living for the average household increased by 7.2 percent in the 12 months to June 2023. Photo / 123rf

Increasing living costs have hit Kiwi households harder than the official inflation rate implies, new data from Stats NZ shows.

Released today, the Household living-costs price index shows inflation faced by the average household in the 12 months to June was 7.2 per cent, more than a percentage point higher than the Consumers Price Index at 6 per cent.

The main contributors to higher living costs for the average household were higher interest payments (up 28.8 per cent) and grocery food prices (up 13.2 per cent).

Stats NZ collects data to understand the impact of economic changes on different types of households in New Zealand. The HLPI measures how spending pattern change across 13 different household groups: five income groups, five expenditure groups, superannuitants, Māori and beneficiaries. Stats NZ also publishes an “all-households” measure.

Experts say each household group faces different pressures. While higher-expenditure or income households face higher living costs due to spiking mortgage payments and interest rates, lower-spending households tended to be more focused on covering the costs of day-to-day necessities like food.

Westpac senior economist Satish Ranchhod said the HLPI was a better gauge of the costs households were actually facing than the CPI because it included a broader set of costs.

The CPI – a tool used to put monetary policy in place – does not include mortgage costs and interest payments while the HLPI does. Interest payments make up a large proportion of many households’ budgets.

“More recently, interest rates have risen very rapidly. That’s at the same time as we’ve seen big increases in other consumer prices, especially for necessities like food.

“The combination of those factors is squeezing household finances for every family across the country.”

While people in all household types would be feeling the pinch of the cost-of-living crisis, the HLPI data showed the group experiencing the largest increase in living costs was highest-spending households (7.8 per cent) and those with the largest household incomes (7.7 per cent).

“The reason for that is because those [households] are more likely to be households who have got homes with mortgages and with those big increases recently, they have seen some very large increases in their living costs.”

Ranchhod said households with lower incomes, particularly beneficiaries, had not seen their living costs rise by as much as higher-spending or income households, but were still facing a lot of financial pressure.

“It’s coming more from the cost of those necessities like food, which have increased significantly.

“Households who are on lower incomes, they are likely to spend a greater share of their income on those necessities like food and housing.”

For beneficiary households, the cost of living increased 6.5 per cent in the year to June 2023. The largest contributor was rent (5.1 per cent), a cost that makes up about 30 per cent of beneficiary households’ spending – compared to 13 per cent for the average household and 5 per cent for the highest-spending households.

Stats NZ consumer prices manager James Mitchell said lower-spending households would be more focused on purchasing more day-to-day necessities.

“The higher expenditure group is more likely to own a home and therefore have a mortgage, so more of the expenditure will go towards ... housing or more luxury type products.”

On the other hand, Mitchell said superannuation households were also likely to own their own home but were more likely to have paid off their mortgage.

“This time around we’re seeing [superannuation households] more affected by insurance premiums.”

The biggest contributor to increases in the cost of living for superannuitant households was grocery food (12.8 per cent) and fruit and vegetables (22 per cent).

For Māori households, the cost of living increased 7.1 per cent in the 12 months to June 2023.

The main contributor to rising costs for Māori households was interest payments (up 30.1 per cent) and rent (up 5.1 per cent).