Retail spending softened in the final quarter of last year, with the total volume of retail sales dropping 4 percent on the year before amid rising interest rates and a warning from the Reserve Bank to "cool the jets".
New figures from Stats NZ show decreased sales for hardware, building and garden supplies drove down overall retail sales - sales were down 15 percent in the December quarter - alongside the motor vehicles and parts industry, where sales decreased 10 percent on the same period the year prior.
Business financial statistics manager Melissa McKenzie said Covid-19 restrictions influenced changes in retail sales patterns over the last few years.
"Falls in building supplies and vehicle sales in the December 2022 quarter are reflective of a decline from the peak in sales seen during December 2021," she said.
The volume numbers do not include price rises in the December quarter, when the annual inflation rate was 7.2 percent.
Volumes grew in the hospitality and accommodation services sector however, as Covid-19 border restrictions eased and international tourists returned.
Food and beverage services were up 14 percent compared to the year prior, while accommodation services were up 28 percent compared with the December 2021 quarter.
"With border restrictions lifting, a return of international visitors was likely to have helped boost hospitality spending at the end of 2022," McKenzie said.
Rising prices hit spending
ASB senior economist Kim Mundy said 2022's retail sales ended on a weak note, as high living costs and warnings from the Reserve Bank dampened the demand for goods.
"Q4 retail volumes were weaker than expected and capped off a difficult year for retail after a stellar 2021," she said.
"Rising prices are clearly weighing on the purchasing power of consumers.
"There also looks to be a shift in spending patterns going on, with the reopening of the NZ border and the pivot back to pre-Covid-19 spending habits.
"That shift is benefitting services spending at the expense of retail goods (most likely consumer durables)."
Mundy said the retail trade figures showed the value of retail stocks climbed to $9.8bn, an 8.6 percent climb compared to 12 months earlier.
"Stock values for hardware, building and garden supplies and motor vehicle and parts retailing have increased sharply.
"This is consistent with anecdotes that the shift from 'just in time' to 'just in case' inventory management post Covid-19 has seen a sizeable build-up in retail stocks.
"With consumers less willing to spend and discretionary incomes being crimped by the soaring cost of living, the risk is that retailers will have to increasingly offload stocks.
"This could result in the price for some retail goods swimming against the tide of rising price increases.
"However, a restocking boost following the devasting weather events recently may also provide retailers a welcome opportunity to run down their stock levels."
Mundy said the rebuild costs after recent extreme weather events would provide an initial economic boost to the economy, but long-term, inflation would take a long time to ease.
"Despite households having built up a Covid-19 buffer, the risk is that surging living costs will sap the purchasing power of consumers and retail activity is likely to struggle over the period ahead as the RBNZ presses harder on the monetary policy brakes."
Mundy expected the Reserve Bank wouldn't be confident it was on top of inflation until "mid-2024 at the earliest".