Rising costs continue to outpace incomes as Kiwis strive to keep up financially

A new report shows how incomes have kept up, or haven’t, with the rising cost of living over recent years. Photo / 123rf

By Susan Edmunds of RNZ

Christchurch mother of two Helen Gilby says keeping up with the cost of basics gets tougher every year.

“Basic costs, which you can only rearrange and cut so many times,” she said. “When I compared my power bills from May to July this year with last year, they’d gone up about 10% and my insurance renewal was around 20% higher across my policies.”

Gilby said her grocery budget would not buy as much as it used to.

“I’m constantly juggling to make ends meet and I’ve even thought about pausing my KiwiSaver contributions to cope, but that means sacrificing my future security to survive the present, and I don’t have much confidence the superannuation system will be there in the same way when I reach retirement age.

“It’s really hard to keep monitoring and measuring everything when you’re on a low income and it becomes a constant source of worry.”

As a solo parent, she said even a pay rise wouldn’t show fully in her take-home pay because of the abatement rates that apply to the Government support available.

She calculated that, although she is not earning at that level, someone in her position receiving a pay rise from $100,000 to $130,000 a year would only get about $200 more a week after tax.

Infometrics data shows how incomes have kept up, or haven’t, with the rising cost of living over recent years.

In the years immediately after the Covid-19 pandemic, lower-income households felt the most pressure but more recently the squeeze had gone on higher incomes.

Since 2020, no one has avoided a year in which their increase in costs was more than their increase in income.

In 2022, median incomes of the lowest-earning quintile rose by 9% more than the increase in living costs. The highest earners lifted by 4.9%.

In 2023, as the sharpest impact of inflation was felt, expenses for the lowest-earning households rose 3.5% more than income. The highest earners’ income only had an increase in costs over income of 1.8%.

Last year, the lowest income quintile had an income increase of 0.7% more than costs, and the second-to-bottom lifted by 1.3%. The top two income quintiles had income growth that lagged cost rises by 1.7% and 1.3% respectively.

Infometrics chief forecaster Gareth Kiernan said higher-income households were more heavily affected by interest rates, which were captured in this data, but not in Consumers Price Index inflation.

“In 2022 and 2023, everything was rising in price, it was hard to avoid.”

He said the labour market was still weakening at the same time as another bout of inflation was felt “in specific areas of unavoidable costs for people”.

“In the current year, we’re probably going to be going backwards a bit again on average.”

North Shore Budgeting Services financial mentor David Verry said lower-income earners were still feeling the most pain.

Some had reduced incomes and it was not unusual to see rent taking up 50-70% of after-tax income. He said lower-income earners usually had interest-bearing debt that often pushed them over the edge.

Another financial mentor, Shula Newland, said power bill increases have hit hard.

“People have been getting power bills over $400 – huge bills.”

Lower-income households were more likely to have to cut food and other essential spending, while higher-income households were cutting down on entertainment, she said.

Consumer NZ said 67% of people listed the cost of living as a top-three concern in its most recent sentiment tracker, which was a record – up from 65% in April and 58% a year ago. Food and power bills were key concerns.

In some cases, other economic changes were making the difference.

When Jess’ husband lost his job in the public service, their attention was forced on to their household budget.

“We’ve had a massive, massive reduction in household income,” she said.

The Wellington parents of two, whom RNZ agreed not to name, had savings that would help a bit, but while it took a long time to build up that saved money, Jess said it disappeared at terrifying speed.

“The challenge is basically trying to cut as much as we can to make that disappear as slowly as possible,” she said. “We’re fortunate to have the savings, but it’s that real uncertainty of how long we’re going to be in this situation.”

As soon as they knew he was losing his job, they cut discretionary spending. They tried to only use their EV and charge it overnight, and cut takeaways, as well as being more careful with food spending and “having to say no” to their teenagers’ requests for money.

“We were quite lucky that we had things that we could cut out, you know, the takeaways and we used to have a cleaner.”

Now, when things like bills for kids’ sports fees came in, they felt quite different. She also tried to put off spending because she hoped the income reduction was only temporary.

“My work shoes are falling apart and I’m, like, I reckon if I glue them, I can get another month and maybe that’s going to be long enough. I guess it’s quite different from people who are on lower incomes and it’s like this is how it’s going to be.”

If they were forced to rely on one income for a longer period, she said they may have to reconsider whether they could cope with their mortgage. When her husband did find a job, it would likely be at a lower income.

They were also trying to cut back their power bill.

“We’re not going really overboard, but trying to slightly rein in the kids’ showers and think about which rooms do we need to heat, that kind of thing.”

Jess said, in general, a lot of people seemed to still be struggling.

“I feel like a lot of people are in our position of going ‘do we need to get that coffee out?’ or ‘I’m making my lunch at home every day’,” she said. “People who are in the public service, at least, even if you have a job, you’re kind of like, ‘I’d better behave as though I might not be keeping it’.”

– RNZ