Households are spending an extra $3000 a year on essentials as the cost of living skyrockets, according to research by the New Zealand Initiative.

Its report, The rising cost of living for Kiwis, released on Thursday, said a third of the increase in living costs was due to higher transport costs, driven by higher prices at the petrol pump.

Higher housing costs – mainly due to rents and local rates – increased food prices, and higher interest payments on borrowing had also contributed.

“New Zealand has the highest inflation in 30 years because too many dollars are chasing too few goods,” report author and senior economist Matt Burgess​ said.

“The Government has misdiagnosed the economic issues behind the pandemic. It has tried to solve a supply-side crisis with a demand-side solution.”

Burgess warned further Government stimulus could lead to inflation becoming entrenched.

“The upcoming Budget includes an unprecedented $6 billion of new spending. This will only add more fuel to the fire, meaning more pressure on the cost of living,” he said.

Meanwhile, the head of a major supermarket chain said the increased cost of living will impact New Zealanders’ stress levels as much as Covid-19.

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Speaking at a Trans-Tasman Business Circle webinar on Thursday, Foodstuffs North Island chief executive Chris Quin​ said it was critical that supermarkets continued to offer shoppers the best possible value as costs rose across the board.

“We have to be fair to our suppliers, but we also have to negotiate firmly for our customers to make sure they still get value for money.

“Three things we will be focusing on are what we pay suppliers, the costs we add getting that product to our customers, and how we educate our customers about where to find value.”

Concerns about the spread of the virus had already changed shoppers’ habits, with many now doing a single “big shop” instead of more frequent small shops, he said.

“With more people working from home, the timing of that big shop has changed, too. There’s not so much of a before and after work rush any more.”

Local stores were also seeing significant growth as people chose to stay close to home and stores like Four Square were becoming more popular.

What people bought had also changed, with demand for frozen and chilled items increasing as shoppers bought ingredients to store.

“People are looking for ease and convenience, but they also want to bring the dining out experience home,” Quin said.

“They want to create those experiences with friends without having to go out and socialise in a way that makes them uncomfortable.”