Kiwis lift spending, despite rate hikes and threat of looming recession

Despite the growing pressures on their finances, households have not been winding back their spending. Satish Ranchhod, Westpac (Right)

Kiwis shrugged off high inflation, rising mortgage rates and warnings of recession to spend more in January than they did in December.

Retail card spending rose $171 million (2.6 per cent) in January 2023 compared with December 2022 when adjusted for seasonal effects, Stats NZ said yesterday.

Total card spending increased in January 2023 following a fall in December 2022.

The rise in retail spending was led by an $80m (5.1 per cent) increase in the durables category, which includes items such as furniture, hardware and appliances.

“The increase in spending on durables came after decreases in November and December last year,” said Stats NZ business performance manager Ricky Ho.

In actual terms, retail card spending increased by $169m (2.7 per cent) in January 2023 compared with January 2022.

“Household spending appetites are holding firm,” said Westpac senior economist Satish Ranchhod.

“Despite the growing pressures on their finances, households have not been winding back their spending.” In fact, the broader “total” measure of card spending (which includes retail spending as well as non-storebased purchases) had risen 7 per cent over the past year, he said.

“Digging under the surface, it does look like some shifts in spending appetites are occurring. A good chunk of the recent strength in spending looks like it’s been related to the recovery in travel, with increasing numbers of us now flying abroad for holidays again.”

Spending in the hospitality category rose by $187m (16.6 per cent), compared with the same month last year. That category includes accommodation and food services.

“The higher spending on hospitality this month reflects fewer Covid-19-related travel restrictions compared with January 2022,” said Stats NZ’s Ho. “The opening of the border in the middle of last year meant more overseas tourists were able to visit New Zealand.”

Reserve Bank warnings of pending recession looked to have had a fleeting impact, said ASB senior economist Mark Smith. “Spending staged a solid rebound from its December dip, with retail, core and total card spending hitting record highs as consumers downplay RBNZ warnings over the need for spending restraint,” he said.

Higher consumer prices over the recent period probably boosted nominal spending values, he noted.

Spending on services, durable goods and apparel is likely to rise, he said, as storm repair work starts and as damaged goods are replaced.

However, said Ranchhod, spending appetites were likely to fall this year. “Price rises are continuing to erode our spending power. And the related interest rate rises will become an increasing drag on households’ disposable incomes.

“To date, many households have been insulated from the rise in interest costs due to mortgage rate fixing,” said Ranchhod.

“Over the coming year around half of all mortgages will come up for refixing, and many borrowers will face refixing at substantially higher rates. That signals a starkly different environment for retail spending over 2023.”