New Kiwibank spending data shows the volume of card spend declined 0.7% over the September quarter, while compared with a year earlier, the number of transactions grew by just 0.5%

Kiwi consumers are increasingly reluctant to pull out their cards for spending, according to Kiwibank senior economist Mary Jo Vergara.

In the latest Kiwibank Household Spending Tracker report for the September quarter, Vergara said Kiwibank electronic card spend rose "a soft" 1.2% over the September quarter, softer than last quarter’s 4% increase.

"The handbrake on consumer spending is even clearer when comparing spend from a year earlier. Annual growth in household spending was just 3% - the smallest annual increase in two years," she said.

"The apparent flattening in the volume of spend suggests that Kiwi consumers are increasingly reluctant to pull out their cards.

"In fact, Kiwi swiped, tapped or inserted their cards fewer times than last quarter.

"The volume of spend declined 0.7% over the September quarter. And compared to a year earlier, the number of transactions grew by just 0.5%. 

"So Kiwi are spending more on their cards, but getting less. It’s part of the cost-of-living crisis…"

Vergara said, however, that the value of spend continues to sit "high above" pre-pandemic levels. As reasons for this she cited the historically low levels of unemployment, the fact consumer prices continue to rise "at an uncomfortably fast pace" and also, "a growing Kiwibank customer base, as well as a stronger preference for contactless payments in the covid era".

The outlook for household spending remains "broadly unchanged", Vergara said.

"Over the last year, most Kiwi mortgages rolled off the low rates of 2020/21. And 30% of our mortgages will soon jump aboard the ‘high rates’ train.

"Alongside still-high inflation and subdued consumer confidence, there’s plenty weighing on household consumption. It’s no surprise to see NZIER report the retail sector as the most pessimistic.

"However, the return of migrants offers a lifeline to retailers. The solid 2% population growth should support aggregate consumption. The upcoming festive season also typically sees a jump in spend which should help turn frowns upside down."

New Zealand's annual rate of inflation as measured by the Consumers Price Index (CPI) stood at 6% as at the June quarter, which is down from a peak of 7.3% as of the June quarter in 2022, but has been coming down only slowly. One of the things highlighted more recently is that after the supply-chain induced shock of goods inflation in the wake of the pandemic, it is services-related inflation that has been particularly pervasive.

Vergara said the value of services spend "has enjoyed double-digit growth for the last year", as consumption rotated away from goods.

"However, demand for services may be waning. Compared to a year earlier, the value of spend increased by just 2.3% over the quarter.

"The volume of spend is even more suggestive of a slowing in services spend. On a quarterly basis, the volume of spend declined almost 3%. And on an annual basis, the slide in the number of transactions is even deeper, down 5.2%

"A slowdown in consumption presents (welcome) downside risk to the outlook for services inflation.

"Unlike goods inflation, the rate at which prices for services is rising continues to accelerate. Solid wage growth is one reason. The other is demand for services. And as the economy emerged from lockdown, demand for services was given a boost. However, today’s tight financial conditions will soon hit demand. Services inflation should be near peak levels."