Household Living Cost Update: The income offset

  • Soaring living costs are expected to add roughly $110 per week to household budgets over the next 12 months.
  • High wage inflation and an extremely stretched labour market have also been good for household income growth, and this should provide a sizeable offset.
  • We still expect a subpar outlook for household spending and a 4.25% OCR peak, but stronger outcomes for the former are possible that will have implications for OCR settings in the context of still tight capacity pressures.

The household sector has gone from leading the domestic expansion to being more of a bystander. Current headwinds facing the sector include the rising cost of living, lower house prices and weaker balance sheets, and lower population growth. This has contributed to downbeat headlines and weak measures of consumer sentiment. Updating our earlier work suggests households will continue to face higher living costs. All up, household weekly outgoings look set to rise by roughly $110 per week over the next 12 months or so although exposures will vary. Large borrowers are expected to be particularly exposed, but the household sector in general looks to be well placed to handle higher debt-servicing costs. We have also been surprised with how quickly household incomes have climbed, with increases in after-tax incomes expected to modestly exceed the surging cost of living. This does not mean a repeat of the 2021 honeymoon period.  Household spending growth is likely to remain subpar over the next year or so. This should cap some of the upside risk to the OCR outlook, but not all, given our expectation capacity pressures will remain tight. We see the OCR peaking at 4.25% early next year. However, stronger household spending could further add to inflation, tighten the labour market, and see even more restrictive monetary settings.  


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Nick Tuffley

ASB Chief Economist

Since starting out in 1997 as an economist, it's fair to say Nick has seen a few hair-raising moments over the years, including the Asian Financial Crisis and the Global Financial Crisis.

One of Nick's strengths is his ability to communicate complex ideas in a readily understandable and entertaining way.  He thrives on helping people understand the economic environment to help enrich the quality of their business or personal life. He’s proud to lead a team that has won two Forecast Accuracy Awards from Consensus Economics, and has a strong track record with their Official Cash Rate and dairy price forecasts. 

Nick grew up in Christchurch and graduated with a Master of Commerce degree from the University of Canterbury.  He learned his economic ropes at the Reserve Bank of New Zealand before a long stint as a Senior Economist at Westpac, and joined ASB as Chief Economist in 2007.

Mark Smith

Senior Economist

Mark joined ASB in 2017, with over 20 years of public and private sector experience working as an economist in New Zealand and the UK.

His resume includes lengthy stints at ANZ and the Reserve Bank of New Zealand, and he has also worked at the Bank of England, HM Treasury and the New Zealand Transport Agency. Mark's areas of specialisation include interest rate strategy, macro-economic analysis and urban economics.

Born and bred in the Waikato, Mark studied at Waikato University where he graduated with a Master of Social Sciences, majoring in Economics.

Mark's key strengths are the ability to use his extensive experience, inquisitive nature, analytical ability, creativity and pragmatism to dig a little deeper and to deliver common sense solutions to tackle complex problems.

When not at work Mark likes to travel, keep fit and spend time with his friends and family.