Senior economist Mark Smith said cost increases are becoming increasingly widespread and affecting core items such as food, housing, and fuel, which would lift household costs by about 7% this year, or $15 billion.

"Further volatility lies ahead, but we expect consumer prices to continue to ratchet higher, with debt servicing costs sharply increasing. Both will place household budgets under pressure."

The bank was forecasting modest annual average growth of 2.1% this year, compared with 5.6% last year.

"Some households could have bigger cost increases, particularly those with large debt they need to refinance. Some could see less, if they don't have a mortgage or they might be a smaller household size."

He said wages were unlikely to keep pace with cost increases and that would mean households having to make tough choices.

Smith said housings would face having to use their savings, cut discretionary spending, and if necessary cut back on essentials such as food and transport.

"Consumer spending is unlikely to be as robust or as resilient as it was in 2021. Discretionary spending could be significantly cut back."

"For most households, we don't expect household disposable income growth to increase by as much as the cost of living," Smith said.

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He said consumer spending would likely be held back as the house price boom faded, which would flow through to reduced growth.

However, that might result in the Reserve Bank is easing back on interest rate rises to combat inflation, although Smith said he expected a steady increase to a peak of 2.75% for the official cash rate (OCR).

Meanwhile the ANZ bank is forecasting sluggish growth this year after the surge from the initial rebound from Covid last year.

The bank was forecasting modest annual average growth of 2.1% this year, compared with 5.6% last year.

Senior economist Miles Workman said the Reserve Bank has no option but to aggressively raise the OCR to combat inflation headed above 6 percent.

"In fact, it may already be too late to prevent a widespread inflation-induced belt tightening from driving a more marked slowdown than we expect."

"But either way, at this point, recession risks are no longer a good reason not to get ahead of the inflation surge," Workman said.