Spending bounce pushing inflation to 7%, Kiwibank warns

Consumer spending has bounced back in the June quarter, but Kiwibank economists warn annual inflation has probably hit 7%, up from 6.9% in the March quarter.

Kiwibank’s Household Spending Tracker for the June quarter showed Kiwibank customers’ electronic card spending was up 7.1% in the quarter.

Kiwibank chief economist Jarrod Kerr said the rise in spending was supported by the move into the orange Covid traffic-light setting, in time for the Easter holidays.

‘‘The rise in consumer prices is boosting the value of transactions. The number of times Kiwis tap, swipe and insert their cards, however, is slowing,’’ Kerr said.

The growth in spending was outpacing the growth in the volume of transactions made, he said.

Kerr said inflation was likely to have lifted further in the quarter, peaking at an annual rate of 7%.

Consumer prices had risen rapidly, and that would be eating into household disposable income, making budgeting that much more difficult, he said.

‘‘With prices expected to continue rising in the near term, households will be forced to tighten their belts and shorten their shopping lists,’’ he said.

Kerr expected the Reserve Bank to lift the official cash rate four more times this year to a peak of 3.5%.

‘‘But there’s little doubt that a more expensive bill is also squeezing discretionary spending.’’

House prices were down 6% from November, and Kerr expected a cumulative 10% decline by the end of the year.

‘‘Housing, however, is the single largest form of wealth among Kiwis. But a cooling market, as is the case today, adds another dampener to consumer spending,’’ he said.

Motorists were making fewer trips to the petrol station compared with the previous quarter, down 7.5%. Instead, people were opting for cheaper public transport alternatives, with spending there up 20.5%.

Spending on entertainment rose 61%, and the return of Top Gun: Maverick to the big screen was bringing cinemas back to life, with spending at the movies and ticketing agencies up 24.5% in June alone, Kerr said.

Household consumption had been a key driver of the economic recovery. But rising prices and interest rates, and a housing market in retreat, would eat into household discretionary spending.

Retail spending rose 5.9% in the quarter and popped higher in department stores and on clothing and footwear in mid-June, Kerr said.

Retail NZ’s June quarter Retail Radar report showed rising operating costs such as wages and freight, staff shortages and a lack of foot traffic were putting pressure on retailers.

Retail NZ chief executive Greg Harford said that on average, across the sector, prices increased by about 6% in the quarter, with a similar outlook for the September quarter.

More than half of retailers failed to hit their targets for the quarter, while 46% met or exceeded them, Harford said. ‘‘Inflation is having a significant impact and, as a result, consumers can expect further price increases on products,’’ he said.

More than 70% of retailers raised prices in the quarter, while 81% said they would be doing so in the next three months.

‘‘Households will be forced to tighten their belts and shorten their shopping lists.’’ Jarrod Kerr Kiwibank chief economist