The sharp deterioration in New Zealand consumer confidence adds to the pressure on the RBNZ as it weighs further rate hikes against a labour market already hovering near decade-high unemployment. A weakening sentiment backdrop reduces the likelihood that domestic demand will keep inflation elevated without additional policy tightening, but it also raises the political and economic cost of hiking further. The New Zealand dollar may face headwinds if the data flow continues to point to a stagflationary squeeze, while rate markets will be watching closely for any signal the RBNZ recalibrates its projected tightening path.
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New Zealand consumer confidence fell to 80.4 in Q2 from 94.7, its lowest since 2023, as Middle East war-driven fuel costs and borrowing pressures weighed on households, a Westpac McDermott Miller survey showed. (205 chars)
Summary:
Source: Westpac McDermott Miller consumer confidence survey
- The index fell to 80.4 in the second quarter from 94.7 in the prior quarter, its weakest reading since 2023
- A reading below 100 signals pessimists outnumber optimists
- Westpac attributed the decline to higher fuel and living costs stemming from the Middle East conflict, along with upward pressure on borrowing costs
- The RBNZ has flagged at least two quarter-point rate hikes by year-end despite unemployment sitting at a decade high of 5.3%
- The government removed the RBNZ's full employment obligation from its mandate in 2023, leaving inflation as the primary policy objective
- The RBNZ projects unemployment to linger at 5.4% for at least a year, a level not seen before late last year since 2015
Consumer confidence in New Zealand slumped to its lowest point since 2023 in the second quarter, a closely watched survey showed on Wednesday, as the economic fallout from the Middle East conflict filtered through to household budgets via higher fuel prices, rising living costs, and growing anxiety about the borrowing outlook.
The Westpac McDermott Miller consumer confidence index fell to 80.4 from 94.7 in the previous quarter, a steep decline that pushed the reading well below the 100-point threshold that separates optimists from pessimists. Westpac said the conflict had driven a broad-based deterioration in sentiment, with cost pressures and concerns about the trajectory of economic activity compounding the squeeze on households already strained by years of elevated interest rates.
The result lands at an uncomfortable moment for the Reserve Bank of New Zealand, which is preparing to lift rates further despite a labour market that has softened markedly. The central bank skipped a hike at its most recent meeting in the closest decision in its history, but has projected a minimum of two quarter-point increases before year-end. It simultaneously forecast unemployment would remain at 5.4% for at least a year, a level not recorded before late last year since 2015.
The policy calculus is shaped by a mandate change enacted by the National Party-led coalition government shortly after taking office in 2023, which stripped the RBNZ of its formal obligation to support full employment. Inflation remains the singular priority, with the central bank projecting the energy shock from the Iran conflict will push the rate to 4.3% in coming months, well above the 1% to 3% target band.
Critics warn the combination of a weakening jobs market, a cost-of-living crisis, and further rate hikes risks pushing the economy into a prolonged stagflationary episode. With the labour market already the most anaemic among developed economies by some measures, confidence data of this kind will intensify scrutiny of whether the RBNZ's narrow mandate is calibrated for the conditions it now faces.
