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Feb 2023 economic update

In brief

  • Aspects of the economy, including retail sales and employment, are strong.
  • Consumer prices continue to rise. Real life costs experienced by most exceed official inflation numbers. Weather is likely to push them higher.
  • Property prices are trending down. Experts expect a further decline, which they largely blame on central bank policy.

More inflation, especially for food

Inflation of consumer prices is continuing to be an issue in NZ, with the consumer price index (CPI) sitting above 7%. Driven by the rise in prices, retail spending is strong moving into 2023. 

Inflation is particularly high for food, where price increases of 11% are at a 32 year high. This food cost trend appears to have pushed up demand on food banks significantly, with requests for food parcels in some areas over 40% higher than late 2022. Auckland City Mission is expecting numbers to continue to rise, with more working people unable to buy food after covering their other expenses.

Budgeting services are busy taking on new clientele. Auckland Central Budgeting is experiencing over five times as many calls, with much focus being on helping families manage increased debt repayments.

Recent flood damage and heavy rainfall around NZ will have a largely inflationary impact according to ANZ economists. Their recent report says flood damage will push consumer prices even higher on rentals, fresh groceries and transport costs. Rebuilding damaged property will boost GDP, but won’t mean the economy is better off.

The agriculture sector was already feeling hard done by, after bad weather conditions from cyclone Hale caused a considerable amount of harvests to be spoiled. Now potato, onion and other vegetable exporters are expected to suffer new losses from flood damage.

Other shortages, including labour, eggs and Co2 are also putting pressure on local industries, which is impacting productivity and cost.

Real estate moving lower

Property prices are still trending down. A decline of over 6%, or $90,000 on average compared to this time last year, depending on the source.

According to real estate data, around 40% of house listings lowered their asking prices last year. Some economists are predicting a further decline in house prices this year, to 20% below peak, largely driven by central bank policy.

Demand for property is also dropping – down 11% on average since this time last year – as higher interest rates add to the difficulty of having a mortgage approved. Those same interest rate increases are also causing more families to consider selling. Mortgages for some are now unsustainable.

The Reserve Bank will meet in late February to announce its next monetary policy moves. Some commercial banks are still expecting another rise to 5.5% from 4.25% this year, though new unemployment numbers may change that.

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