Rising Costs Squeeze Households as Incomes Struggle to Keep Up

The cost of living continues to escalate at a rate that outpaces most incomes, putting financial pressure on households across New Zealand. Christchurch resident Helen Gilby, a mother of two, shared her ongoing struggles to manage basic expenses. “Basic costs, which you can only rearrange and cut so many times,” she noted, highlighting a concerning trend reflected in national data.

Gilby pointed out that her power bills increased by approximately 10 percent from May to July compared to the previous year, while her insurance renewal rose by around 20 percent across all policies. This rise in expenses, she explained, makes it increasingly difficult to stretch her grocery budget. “I’m constantly juggling to make ends meet,” she added, expressing the difficult choice between immediate survival and future financial security. She considered pausing her KiwiSaver contributions but was concerned about the long-term implications for her retirement.

The financial strain is not unique to Gilby. Data from Infometrics reveals that no household has escaped a year in which their expenses outpaced income since 2020. Particularly alarming is the trend for lower-income households, which have faced significant pressure in the years following the Covid-19 pandemic. In 2022, median incomes for the lowest-income quintile saw an increase of 9 percent more than living costs, while higher earners saw only a 4.9 percent increase. However, in 2023, the situation shifted dramatically, with low-income households experiencing a cost increase of 3.5 percent beyond their income growth.

Gareth Kiernan, chief forecaster at Infometrics, emphasized that higher-income households are more affected by rising interest rates, which are not fully captured in the Consumer Price Index (CPI). “In 2022 and 2023, everything was rising in price; it was hard to avoid,” he stated. He noted that the labour market is weakening, which compounds the financial burden as inflation continues to impact essential costs. Kiernan warned that, on average, households might experience further financial regression this year.

Another financial mentor, Shula Newland, pointed out that escalating power bills have hit low-income households particularly hard, with some facing monthly charges exceeding $400. As a result, many families are forced to cut back on food and other essential expenses, while those in higher income brackets are primarily reducing discretionary spending.

The rising cost of living is a top concern for many New Zealanders. A recent survey by Consumer NZ revealed that 67 percent of respondents listed it among their top three worries, marking a record high compared to 65 percent in April and 58 percent a year ago. Food and power bills are at the forefront of these concerns.

For some families, job loss amplifies these challenges. One Wellington couple, who wished to remain anonymous, felt the impact when the husband lost his job in the public service. “We’ve had a massive, massive reduction in household income,” the wife explained. Although they had savings to cushion the blow, she noted that those resources dwindled rapidly. “The challenge is basically trying to cut as much as we can to make that disappear as slowly as possible.”

In response to the financial situation, they have implemented strict budget cuts, eliminating discretionary spending and being cautious with their vehicle usage. They have also had to decline their teenagers’ requests for money. “We’re fortunate to have savings, but it’s that real uncertainty of how long we’re going to be in this situation,” she reflected.

The couple has been strategic about their spending, postponing necessary purchases like work shoes in hopes that their financial circumstances improve soon. They recognize that relying on a single income for an extended period may require them to reconsider their mortgage commitments. As they adjust their lifestyle, they also focus on reducing utility costs, employing strategies like limiting heating to essential rooms and monitoring power usage.

The sentiment echoed by many is one of uncertainty. As the Wellington resident remarked, “A lot of people are in our position, going, ‘Do we need to get that coffee out or can I make my lunch at home every day?'” This shared experience underscores the growing financial strain faced by households across the nation, highlighting the urgent need for sustainable solutions to alleviate the pressures of rising living costs.