Are we better off than we were going into election 2023?

In 2023, the cost of living and pressure on households were key components of the election campaign.

Photo: RNZ

Are New Zealanders heading into the next election in a poorer financial position than last time?

In 2023, the cost of living and pressure on households were key components of the election campaign. Labour promised to remove tax from fruit and vegetables and expand free dental care. National concentrated on tax cuts.

Now, three years down the track, are we better off?

Economists say the answer is not particularly clear.

Some things are better.

Housing affordability is better now. A 80 percent mortgage on a typical house in Auckland takes up 42 percent of median household income, nationwide, down from the peak of 56 percent in late 2023.

Incomes have risen. Infometrics says the median national income has increased from $107,144 per household in 2023 to $119,957. Places like Auckland and Wellington have higher incomes again.

Home loan rates are down. In June 2023, a typical two-year special home loan rate was just under 6.9 percent, according to Reserve Bank data. It's now nearer 5.2 percent.

The conditions for farmers have improved significantly.

But on the flipside, a lot of things are not good.

We might not talk about the "cost of living crisis" quite so much, but the pressure is still on and prices for a lot of things, particularly essentials, continue to rise.

Power has increased more than 20 percent. Insurance is up by about a third in parts of the country that are being classed as high risk by insurers.

The cost of a food shop including broccoli, sliced bread, tomatoes, chicken breast, mince, cheese, eggs, yoghurt, bananas, apples, ice cream, frozen peas and butter lifted from $106.59 in 2023 to $112.27, according to food price data from Stats NZ.

Unemployment is up. Petrol and diesel are significantly more expensive.

Infometrics chief forecaster Gareth Kiernan said people would probably feel about the same or a little worse than they did in 2023.

Infometrics chief forecaster Gareth Kiernan.

Photo: RNZ / Rebekah Parsons-King

"In 2023, there was light at the end of the inflationary tunnel. Interest rates were still causing problems for people but you were getting a catch-up in wage growth from some of the big cost increases of the previous couple of years, whereas now there's not a lot of hope that things are going to get better.

"You've got interest rates going back up and you've probably got cost increases coming through for other stuff on the back of fuel price hikes."

He said households could not avoid increases when they were in things like electricity, insurance and local government rates.

Some of the costs were driven by local factors but others were influenced by what was happening overseas.

"Take local councils, for example. Their infrastructure costs rose substantially in the Covid and post-Covid period. There had to be a catch-up in local government rates there, and similarly in electricity.

"There's bigger systemic issues in some of these areas as well and a lack of genuine competition which seems to be contributing to some of those price increases. It's a difficult mix that the Reserve Bank can't do anything about, or almost can't do anything about, because it's either coming from offshore or it's sort of markets that aren't real markets."

He said there was still reason for optimism.

"You've seen petrol prices and diesel prices come back a bit from their peak, you've seen international oil prices track a bit lower as well. The global economy, in terms of the projections for growth over the next 18 months or so, have moderated a bit. But nowhere near as much as some of the early warnings would have suggested.

"A lot of that seems to be driven by tech and AI and optimism about that which may not necessarily boost New Zealand's prospects but does provide some sort of hope that the global economy keeps going and therefore demand for our exports holds up and prices hold up as well."

He said the biggest problem was that households and businesses had been facing difficult conditions for three years and being told each year that the next would be better. "I think everyone's heartily stick of that. It's at the stage where they'll believe it when they see it."

In June 2023, the ANZ consumer confidence measure was 85,5, described as a very low level but the highest since January that year. In May this year, it was 86.5.

Simplicity chief economist Shamubeel Eaqub said the share of people feeling better about their finances had not changed much.

Simplicity chief economist Shamubeel Eaqub.

Photo: Supplied

"People who don't feel good about their finances have grown a lot. So, it's expansion of poverty, expansion of people who are experiencing the increase in the cost of living… not many people have had their income go up enough to keep up with it."

He said many people, particularly women, were not working as many hours as they would like to be.

Eaqub said for a long time, import prices had been steadily falling but for the past five to seven years they had been going sideways. "That cheapening of imports that gave us a real purchasing power for everything else, that influence disappeared.

"If TV prices go up, you can do with a smaller TV. But when food prices go up, you can't do with less food or electricity or whatever. And I think that's probably been the thing … there is a misconception that the current increase in inflation is because we are consuming too much… that's not true. It's a much more structural, sticker kind of inflation. If the Reserve Bank wants to resolve that with higher interest rates they're going to have to create a bloody big recession to achieve it."

He said he was not feeling optimistic, particularly around the Iran war.

"It's not just the cost of fuel, it's the knock-on effects on all those other bits that we've talked about before. The impact on fertiliser, the impact on food prices, the impact on packaging, et cetera… That disruption is still to come through and we haven't seen that yet… what happens if inventories run low in July or June, July? And there is some kind of shock on our trading partners or even our access to fuel."

He said if the Reserve Bank started to raise rates soon it would be a blow particularly to young people who had got into the housing market recently.

"I think there's a whole bunch of people who are going to be at the margin. They've probably been hanging on and all of a sudden, I think that will knock them over."

Murat Ungor, an economist at Otago University, said the picture was mixed but he felt households were slightly better positioned than in 2023.

"While prices are still rising, they are doing so at a much slower pace, which has taken some of the intensity out of the cost-of-living squeeze for households.

"That said, inflation is still above the Reserve Bank's target range and has remained there for several quarters. There is also renewed uncertainty on the global side. Since early 2026, the conflict in the Middle East has disrupted oil supplies and pushed fuel prices higher."

Dr Murat Üngör from the Department of Economics at the University of Otago

Photo: Supplied

He said the main weakness was in the labour market.

"That shift matters because rising unemployment directly affects household confidence, job security, and spending decisions. Put simply, for households who are in work and have benefited from slower inflation, conditions are somewhat more stable than in 2023. But for those facing job insecurity or higher living costs, the pressure remains very real."

He said many of the pre-Covid headwinds, such as weak productivity growth, demographic ageing, and limited investment dynamism, were still present. "Those issues sit underneath the short-term fluctuations in inflation and interest rates, and they will continue to shape household living standards in the years ahead."

Westpac chief economist Kelly Eckhold said lower interest rates would be having a big impact on a lot of households.

Westpac chief economist Kelly Eckhold.

Photo: Supplied / LinkedIn

"Even though fixed mortgage rates have gone up in the last three or four months, they're a darn sight lower than they were in 2023."

He said the unemployment rate was much lower then but it was moving higher and people were aware of that.

"There was a lower unemployment rate then and wage growth was running at a stronger clip because it reflected the history of lower unemployment rate. But it was in the process of adjusting, people were feeling quite insecure… Whereas now depending on where you are in the country you might be feeling a bit better.

"Down in the South Island, there's been decent job ads growth, decent employment growth, the unemployment rate is lower."

He said there was a lot of pessimism because people were not sure what the geopolitical environment would bring and the government had an austerity plan that appeared to have a very long horizon.

"Things like house prices, the unemployment rate, house prices are not really going up and the unemployment rate looks set to probably at the very least to remain at around current levels for the foreseeable, which is, I think, pretty disappointing for people. "

The cost of living had never gone away as an issue after the 2023 election, he said.

"I think it does depend on where you are. In 2023, there was a lot of concern about the agricultural sector because meat prices and dairy prices were really, really low and there were real concerns there. Whereas now… that balance sheet now looks really strong.

"Those farmers are flush with cash. Those communities around them are noticeably more upbeat than they certainly would have been in 2023."

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