Rising Utility Bills Squeeze Household Budgets, Impacting Spending

Households are grappling with a significant increase in utility bills, resulting in reduced discretionary spending as revealed by recent data from Kiwibank. The costs of essential services have surged, leaving many families with less disposable income for leisure activities and retail purchases. According to Kiwibank economists, households are spending more than a third—specifically, 36 percent—more on utilities compared to the previous year, leading to a challenging economic environment as 2025 begins.

Consumer Spending Declines Amid Higher Costs

Kiwibank’s economist, Sabrina Delgado, pointed out that the anticipated boost in spending during the holiday season was less pronounced this year. “We typically see spending ramp up into the summer holidays,” she stated. Although transaction numbers in December increased by 0.4 percent compared to last year, January proved disappointing. Transactions dropped by 2.7 percent below the monthly average for 2025, and were down 2.3 percent from January 2024.

Despite an overall increase in spending—up 8.6 percent in December and 3.7 percent in January—the data indicates that consumers are shopping less frequently but spending more per visit. Delgado attributed this trend to rising prices, stating that inflation has continued to place pressure on household budgets. “Higher prices mean fewer shopping trips, with more spent per trip,” she added.

Impact on Retail and Consumer Behavior

The retail sector, particularly fashion, is experiencing the brunt of these economic pressures. Delgado noted that spending on apparel is in persistent decline. Early data for February indicates transaction volumes tracking about 4.3 percent lower than the same period last year, suggesting that subdued consumer sentiment may persist.

Interestingly, while dining out appears to be more popular, spending at cafes has decreased. “We frequented our local coffee and brunch spots less than last year,” she remarked. The 9 percent rise in café spending indicates that while fewer visits are being made, customers are paying significantly more per visit due to higher food prices.

Takeaway food purchases have also seen a steady decline, while there is a noted increase in demand for housing-related goods. Trips to hardware stores rose by 6 percent year-on-year in December, with spending increasing by just over 30 percent. This uptick in housing-related expenditures may signal a positive outlook for the housing market, as consumers invest in home improvements.

Delgado emphasized that although the labour market shows signs of improvement, consumer confidence remains fragile. With the unemployment rate at 5.4 percent, households are cautious about their spending habits. “If they see that unemployment is rising, that job insecurity weighs on their confidence to spend more,” she explained.

Looking ahead, Delgado predicts a recovery in consumption for the remainder of the year, contingent on improvements in the broader economy and the housing market. She mentioned that any potential interest rate increases should be anticipated for 2027.

As households navigate these financial challenges, the anticipated recovery will depend on external economic factors and consumer confidence. With many families adjusting their spending habits, the impact of rising utility costs will continue to shape household budgets throughout 2025.