The cost of living for the average New Zealand household rose 3.2 percent in the year to the June quarter, the biggest annual increase since September 2024, and the figures released by Stats NZ on Tuesday show that average hides an unusually wide split between households.
The household living-costs price indexes track what 13 different types of household actually spend their money on, rather than applying one national shopping basket to everybody. On that measure, superannuitant households faced cost increases of 4.5 percent over the year and the lowest-income households 4.3 percent. Beneficiary households were up 3.7 percent. The highest-spending households, at the other end of the scale, saw their costs rise just 1.9 percent.
That is a gap of 2.6 percentage points between the households spending the most and the retirees near the bottom. Three months earlier the same comparison ran from 0.7 percent for the highest spenders to 3.9 percent for superannuitants. The gap has not just persisted, it has widened, and it has done so while the headline numbers were still being described as an inflation problem that affects everyone equally.
Two things explain almost all of it, and both come down to what a household buys rather than how much it earns.
The first is petrol. Prices at the pump were up 27.5 percent over the year and 20.1 percent in the June quarter alone, after supply disruption in the Middle East pushed crude sharply higher from late February. Nicola Growden, prices and deflators spokesperson at Stats NZ, said higher petrol prices accounted for almost a third of the annual increase in living costs for the average household. She told interest.co.nz that the effect was largest on lower-spending households because “petrol makes up a larger proportion of their expenditure”.
This is the part that is easy to miss in a national inflation figure. A household spending $200 a week on everything has very little room to shrink its fuel bill, because the trips it makes are the trips it has to make. Getting to work, getting children to school, getting to a medical appointment in a town without a bus route. Fuel behaves like a fixed cost for those households and like a discretionary one for households that can leave the car at home. When the pump price moves 27 percent, it lands on the two groups differently, and the index is now measuring exactly that.
The second factor is mortgage interest, and it works in the opposite direction. Interest payments for the average household were down 15.4 percent over the year, the continuation of a fall that began after the Reserve Bank started cutting the official cash rate. Those savings flow overwhelmingly to households with large mortgages, which in practice means higher-earning households in their thirties, forties and fifties. It is why the highest spenders recorded barely any cost increase at all. Their fuel bill went up and their mortgage bill went down by more.
Superannuitants get no share of that. Retirees are far more likely to own their homes outright, so falling interest rates give them nothing to offset the petrol, the power bill and the council rates. Consumer price figures released a week earlier had electricity up 12.0 percent over the year and local authority rates up 8.8 percent. Those are the lines on a household budget a retired couple cannot negotiate down, and there are no mortgage savings arriving to cover them.
The comparison with the wider inflation rate makes the same point from another angle. The consumers price index rose 4.1 percent over the year, well above the 3.2 percent recorded for household living costs. The two differ mostly because the living-costs measure counts mortgage interest payments while the consumers price index counts the cost of building a new house instead. Falling interest payments have been quietly holding the household measure below the official inflation rate for more than a year.
That cushion is now deflating. Interest costs for the average household rose 4 percent in the June quarter compared with the March quarter, the first meaningful lift since the peak of 31.2 percent annual growth in December 2023. The Reserve Bank raised the official cash rate to 2.50 percent on 8 July, its first increase since May 2023, and most of the major banks expect it to reach around 3.00 percent by the end of the year. Fixed rates are already being repriced.
The arithmetic for the next few quarters is therefore fairly blunt. If petrol stays elevated and mortgage rates start climbing, the households that have been shielded by falling interest payments lose their shield, while the households already carrying the fuel increase carry it for longer. The 1.9 percent figure for high spenders is the number most likely to move, and it will move upwards. The 4.5 percent for superannuitants has less obvious relief in sight, because none of the components driving it respond to monetary policy quickly.
The political timing is awkward. Cabinet is due to decide the future of the temporary $50 a week fuel payment, a scheme designed for exactly the households the June quarter figures identify as worst affected, at a point when petrol has returned to around $3 a litre. Our report on that decision is here.
Annual inflation has now sat outside the Reserve Bank’s 1 to 3 percent target band for two consecutive quarters. Stats NZ noted that without the petrol and diesel increases, the consumers price index would have risen 2.9 percent over the year, which is inside the band. That is a useful reminder that this is largely an imported price shock rather than a domestic demand problem, and also a reminder that the households least able to absorb an imported fuel shock are the ones absorbing most of it.
Has your household budget shifted over the past year, and where has it hit hardest? Tell us in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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