Household costs are expected to rise $70 a week on average next year as high interest rates and prices keep the pressure on budgets, an ASB Bank report estimates.
The increase was a reflection of slowing inflation compared to the $115 higher costs expected for this year, and about half the increase at the height of the pandemic.
Senior economist Mark Smith said the increase would be a stretch for many households, but there had been a surprising resilience among consumers.
"The inflation outlook remains inherently uncertain, but we expect the pace of cost increases to progressively slow, both in absolute terms and relative to household incomes."
Inflation slowed to 5.6 percent in the three months ended September from a peak of 7.4 percent the year before, and the Reserve Bank has forecast it to fall back within its 1-3 percent target band by the end of next year.
Smith said those who had taken out mortgages in recent years and were now faced with renewing at higher rates would feel the squeeze on their finances the most, which would be added to by rising costs of services such as rates and insurance.
"Cost movements will be uneven, with slowing increases for consumer goods, but for still chunky rises in debt servicing and other consumer services."
Savings and buffers
Smith said households had fared better than expected because of savings and buffers built up in the pandemic.
"Kiwi households have built up a circa $30b nest egg of savings since the Covid-19 pandemic. The amount of saving is being eroded as growth in household expenditures has outpaced income growth. Still, households in aggregate are still saving."
However, an easing labour market would add further pressure to some households.
Smith said the concern for the Reserve Bank would be if consumers believed they were past the worst of the hard times, and felt confident enough to pick up their spending.
"Ongoing consumer restraint and increased consumer resistance to paying higher prices are key pre-requisites to cooling domestically generated inflation.
"Hence the tough talk by the RBNZ and the warning that the OCR [official cash rate] may have to go up if inflation fails to sufficiently cool."