When the country’s newspapers devote their cover pages to advertisements captioned “The cost living crisis”, it’s not something that makes palatable reading for government ministers.
When the advertisements come from an organisation like Kidscan, appealing for donations “to make sure children in poverty get the food they urgently need this winter”, those ministers may well choke on their morning lattes.
Prime Minister Jacinda Ardern has other weighty issues on her mind – at least for now – as she prepares to fly off to Europe to talk trade in Brussels with the EU and security in Madrid with NATO.
But for deputy Prime Minister Grant Robertson, left to mind the shop while she is away, the media’s highlighting of a cost-of-living crisis and the persistent challenge of child poverty could dampen his normally cheery optimism on the state of the economy.
Yet another dampener would be the latest Westpac McDermott Miller Consumer Confidence Survey, which has recorded the lowest reading on NZ consumer confidence since the survey began in 1988.
The survey’s consumer confidence index dropped sharply in the June quarter, down 13 points to a level of 78.7.
At interest.co.nz, Westpac’s acting chief economist, Michael Gordon, is quoted as saying household budgets are being squeezed in a way they haven’t been for decades.
“The combination of rising mortgage rates and increases in living costs has already taken a large bite out of disposable incomes,” he said.
“And with interest rates set to rise even further, many households will find the pressure on their finances becoming more intense over the coming months.”
Gordon said the pressure on household finances is weighing on spending appetites, and he’s expecting a downturn in economic growth more generally over the coming months.
“The extent of that downturn will have an important bearing on how much further the Reserve Bank will raise the Official Cash Rate.
“If demand slows sharply – consistent with the drop in consumer confidence – increases in the cash rate are likely to fall short of what financial markets are expecting.”
The RBNZ has doubled the OCR in the past two months to 2% and is expected to raise it to 3% by the end of August. It has signalled the OCR could be about 4% by this time next year.
The survey was conducted over June 1-14, with a sample size of 1,559. An index number over 100 indicates that optimists outnumber pessimists. The margin of error of the survey is 2.5%.
One thing that has helped to get the economy rolling again after lockdowns has been the willingness of Kiwis to spend on household items – particularly as the housing market roared ahead.
Now the market’s falling there’s been a massive downward shift in thinking.
In fact the survey shows that the number of households who think it’s a good time to make a major purchase has collapsed, dropping to the lowest level on record. At the same time, households have reported that they have scaled back their spending on leisure activities like dining out.
Westpac senior economist Satish Ranchhod said a particularly notable feature of this quarter’s survey is how uniform the drop in confidence has been.
“Confidence has fallen sharply across all age groups and income brackets. Confidence also is at low levels in every corner of the country.”
There have been particularly sharp falls in regions like Southland, Auckland, Canterbury and Northland. There were two regions – Wellington and Gisborne/Hawke’s Bay – where there were small increases in confidence.
This broad-based weakness in consumer confidence highlights the extent and nature of the challenges households are grappling with,” Ranchhod said.
“The pressure on household finances has not been limited to any group or region. And while economic conditions will vary across the country, all parts of the economy will be affected by the tightening in financial conditions now in train.
“Similarly, the related slowdown in economic activity that we’re forecasting is expected to be widespread.”
Ranchhod said large numbers of households have said that their financial position has deteriorated in recent months, and many expect that it will continue to weaken over the coming year.
That’s despite the introduction of policy measures to limit the pressure on living costs, such as the reduction in the fuel tax and halving of public transport charges.
And it’s not just their personal financial situation that’s got households worried. Increasing numbers of New Zealanders also expect that economic conditions more generally will deteriorate over the next few years, Ranchhod said.
“Adding to the concerns about the economic landscape, many households have seen the value of their assets falling in recent months. Nationwide house prices have dropped by 6% since November.
“Similarly, the value of KiwiSaver balances and other financial assets have dropped sharply since the start of the year.”
Not a pretty picture.
And it’s not the kind of news a government wants to read as it heads into election year.
ACT’s David Seymour rubbed it in by reminding Kiwis the last time confidence was this low was when Dave Dobbyn had just released Loyal and Rain Man was cleaning up at the Oscars.
Nor could he resist observing:
“The question Kiwis must be asking themselves is do we want to carry on in comfortable decline until we slip away from first world status, or do we want real change?”