NZ Consumers Turn Cautious as Inflation Expectations Remain High

New Zealand consumers turned cautious in August as inflation expectations remained high. The ANZ-Roy Morgan Consumer Confidence index fell to 98, a one-point drop from July. Despite this decline, the survey still indicates that consumers are prioritizing essentials over big-ticket purchases.

The 'net share' of people saying it's a good time to buy a major household item dropped five points to minus 12, while the 'current conditions' gauge fell to 83.4. However, people were slightly more upbeat about what's ahead, with the 'future conditions' index ticking up to 107.7.

The sticking point is inflation psychology, as two-year inflation expectations remained steady at 4.7%. This is significant because it can influence mortgage rates in New Zealand, which are often set for similar fixed terms. If households and businesses continue to expect high price increases, lenders may build in a bigger cushion to account for this.

While the current confidence index of 98 suggests that consumers are still feeling relatively positive about their financial situation, the steady inflation expectations could help keep mortgage rates stable when borrowers' fixed terms roll over. This is particularly relevant given the recent increase in gasoline prices, which has left people feeling worse about their finances compared to a year ago.