What caused the cost of living crisis, and what happens next?
This is the first in a series of articles to help you understand and navigate the cost of living crisis.
The cost of living crisis has been the defining issue for New Zealanders over the past year, with all of us feeling the pinch from rising supermarket prices, fuel costs, power bills, rent, and mortgages. Average household costs increased by 7.7% in the 12 months to March, according to figures released by Stats NZ.
And a recent State of the Sector report by Comvoices and Community Networks Aotearoa, said the demand for help with basic living needs was an at an all time high, with community services unable to cope.
But there may be some respite on the horizon, according to market experts.
A fluctuating background
Nick Tuffley, chief economist at ASB Bank, says several factors have contributed to the financial challenges people are facing across the country.
“Fuel prices rose sharply as the global economy started to recover from Covid-related weakness and after Russia’s invasion of Ukraine,” he explains. “Global supply chain challenges also pushed up the cost of many imported goods.”
Other issues, such as a worker shortage, have also contributed to rising costs, Tuffley says, forcing businesses to pay higher wages and pass extra costs onto consumers.
To combat inflation, the Reserve Bank of New Zealand has raised interest rates several times over the past year. As a result, mortgage rates have increased, meaning larger interest payments for homeowners and higher rent for tenants.
ASB Chief Economist Nick Tuffley says a combination of factors have caused the cost of living crisis
ASB Chief Economist Nick Tuffley says a combination of factors have caused the cost of living crisis
But thankfully, conditions are starting to improve. Tuffley says inflation has begun to ease in recent months, which could lead to lower interest rates in the year ahead.
“We are likely past the peak in inflation,” he says. “We’re starting to see slower inflation in goods now that supply chain challenges have eased, and this should continue over the next year. Food price inflation will also soften now that global food commodity prices are moderating, and after destroyed crops have been replanted following this year’s extreme weather.”
“Interest rates are likely to fall next year, helping those with a mortgage,” Tuffley adds.
Every step counts, head to ASB’s Cost of Living Navigator to find tools and resources to help you through the cost of living crisis.
How Kiwis can prepare for rising costs
From the supermarket checkout to the fuel pump, our everyday expenses keep rising.
In a cost-of-living crisis, it’s vital that individuals and families take every step they can to monitor their finances more closely.
Some easy practical steps can help anyone cut down on their expenses. Budgeting tools, saving strategies and investment planning are all crucial during times of high inflation.
Having a rainy day fund can alleviate some of the financial stress in an economic downturn.
According to Tuffley, many New Zealanders are unprepared for unexpected events and have less than $1,000 in accessible savings.
“Preparedness for dealing with the higher cost of living is mixed,” he adds. “Although there has been a sharp lift in households’ overall savings in banks, 43% of New Zealanders have less than $1,000 in savings, leaving them unprepared for unexpected events. And only 31% of New Zealanders have a regular and deliberate savings habit,” he says.
"Find something that works best for you.”
Making a start
ASB community banker Gill Gilder says a proper budget “is a great place to start” and can put people in a stronger financial position.
“A budget shows how much money you have coming in and how much is going out,” she says. “The outgoings could include regular expenses such as a mortgage, rent, power, as well as things that aren’t given much thought, such as takeaways and coffees.”
“It could be written on a piece of paper, a tracking app or a spreadsheet,” she adds. “Seeing it can highlight what is important spending and what is not. Find something that works best for you.”
Take action early
"Many people know their mortgage rate will increase sharply when coming off fixed rates," says Gilder.
"Rather than waiting to see if you can afford this increase, take action early. Use bank lending calculators and speak to your bank. If you’re still on a fixed rate, look at paying down other debt or putting money aside now for when your rate changes.”
Tools that can help
Managing finances can seem like a daunting task at the best of times, but fortunately, there are a host of free tools to help.
Sorted is a government website designed to help New Zealanders manage their money. The site offers a range of digital services, including budgeting tools, debt calculators, and mortgage calculators to help people plan for interest rate changes.
Other websites offering help free of charge, include:
- MoneyTalks NZ (for advice and mentoring)
- FinCap (which supports 200 free financial services)
Staying on track with the right support
The cost of living crisis impacts all of us, so it’s crucial to stay on top of your finances.
Take proactive steps to manage your budget, and speak to a professional today.
ASB’s Cost of Living Navigator has a wealth of information to help Kiwis make informed financial decisions.
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