Inflation concerns leave consumer confidence in the doldrums

Homeowners are remaining cautious as the value of their largest asset goes down and spending power diminishes amid high inflation, according to new research.

The ANZ-Roy Morgan Consumer Confidence Index rose 3 points in August to 85.4.

However, confidence remains subdued compared to the 97.7 points in January’s survey following the country’s move out of the alert level system in December.

Confidence plunged in February and hit a year-low of 77.9 points in March after the Omicron variant’s arrival in New Zealand.

Consumers’ economic outlook in 12 months’ time improved from -43 per cent to -35 per cent. The five-year-ahead measure lifted from -5 per cent to +2 per cent.

In its recent survey, the proportion of people who believe it is a good time to buy a major household item — seen as the best indicator for retail spending — lifted 8 points to -17 points, its highest read since January, but still very low.

According to the research, households are not happy with higher living costs and are concerned about the economic outlook.

Annual inflation hit 7.3 per cent in the June quarter — its highest since 1990.

This was largely driven by rising rents and construction costs, while the 32 per cent increase in petrol prices in the year to the June 2022 quarter also had a big impact.

And in order to keep inflation under control, the Reserve Bank has been raising the official cash rate at pace, now at 3 per cent — its highest level since 2015, from record lows at the beginning of the pandemic in 2020.

Consumer inflation expectations remain far too high at 5 per cent, the research said.

New data from Stats NZ showed retail sales have declined for the second quarter in a row. The volume of total retail sales fell 2.3 per cent in the June 2022 quarter, after a 0.9 per cent decrease in the March 2022 quarter, when adjusting for price and seasonal effects.

To get inflation down, the Reserve Bank will need to see consumption slow markedly, say ANZ.

ANZ is expecting the RBNZ to keep hiking the OCR in 50bp steps in the remaining two meetings this year.

House price inflation expectations were little changed at 0.9 per cent, according to the research.

The housing market, red hot during the first year of the pandemic — largely fuelled by record-low interest rates — has been steadily falling.

Latest Real Estate Institute of New Zealand data shows national house prices fell $40,000 in just one month ( June-July) and Auckland’s were down $50,000.

The national median house price was $810,000 in July, down from $850,000 in June.

But despite the value of properties falling, this is offset to some extent by a super-tight labour market where incomes are looking secure, and rising, the research said.