New Zealand's cost-of-living crisis reshapes spending as budgets tighten

New Zealand households are feeling the pinch as rising costs and inflation squeeze budgets. Despite lower interest rates, spending on essentials has surged, leaving less room for discretionary purchases. Recent data reveals shifting consumer habits, with some sectors struggling while others see cautious growth.

Consumer spending in January fell 2.7% below the 2025 monthly average and dropped 2.3% compared to the same month last year. The decline reflects ongoing financial strain, with households now spending 36% more on utilities than a year ago. Concerns about the labour market have also made people more hesitant to open their wallets.

The fashion retail sector has been hit particularly hard. Since 2022, real-term spending on clothing has plummeted by 12-15%, with women's apparel down 18% and footwear falling 16%. Luxury and fast fashion, including sportswear, have seen even sharper declines of over 20%. Industry reports from Retail NZ and Stats NZ confirm the trend, pointing to inflation, high interest rates, and reduced discretionary spending post-COVID as key drivers.

Meanwhile, spending habits have shifted in other areas. While takeaway orders continue to decline, dining out has become more popular—though with tighter budgets. Cafe spending rose nearly 9% compared to last summer, but overall expenditure remains cautious. Hardware stores, however, saw a 6% increase in visits in December, suggesting a rebound in housing-related purchases. Yet the property market itself remains weak, with much of household wealth still tied up in real estate.

Economists remain optimistic about a gradual recovery. As the broader economy stabilises, consumer spending is expected to pick up later in the year.

The latest figures highlight a mixed picture for New Zealand's economy. Essential costs are rising, forcing cutbacks in non-essential areas like fashion and takeaways. But with hardware sales climbing and dining out holding steady, some sectors show signs of resilience. Analysts anticipate a slow but steady improvement in consumer confidence as economic conditions ease.