According to a report released by ASB Bank, New Zealand households are likely to experience another difficult year financially. Costs are forecast to rise by an average of $70/week, as high interest rates are expected to continue for well into next year at least.
According to Mark Smith, ASB Bank’s Senior Economist, this rise will make life harder for many households in the country, especially those that are already struggling to make ends meet. However, Mr Smith also went on to add that despite uncertainty in the markets, the banks expect the rate at which costs continue to rise will slow down in the coming months. He also added that consumers overall have been “surprisingly resilient” in handling the challenges they have faced.
The three months running up to September saw inflation slow down to 5.6 per cent. This figure is reduced from a high of 7.4 per cent in 2022 with rates anticipated to fall to between 1-3 per cent by the end of 2024. Smith added that borrowers who have bought a house recently may need to renew their mortgages at higher rates, which will make things harder for some people.
Smith added that part of the reason for consumer resilience is savings accrued during the pandemic as uncertainty was high. He added that New Zealanders have saved approximately $30 billion collectively, but savings are steadily dwindling as costs remain high. As consumers’ reserves begin to run out, it’s possible the economy may begin to look bleaker.
The economist also pointed out that many consumers are still holding back on spending as uncertainty over the future remains. However, this could change in the not too distant future, potentially causing the market quite a shock which could cause a rise in inflation rates.
Mr Smith mentioned that consumers need to be mindful of suddenly spending more if they feel they are through the worst. Such a phenomenon would likely lead to increased inflation, potentially drawing out the difficult times. He went on to add that the Reserve Bank of New Zealand (RBNZ) may decide to increase the official case rate if high inflation rates remain stubbornly high.
Overall, while further price rises will not be welcome, the rate at which they are rising is falling. This gives some hope that a return to pre-pandemic market conditions could be on the horizon.
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