Retail sales fell 1.2% in March, the biggest fall since March 1997 and an indication that households are starting to struggle to meet their living expenses.
"An early Easter this year likely exaggerated the weakness, but there is no doubt that consumers are shutting their wallets in the face of higher cost of living pressures," ANZ-National Bank chief executive Cameron Bagrie said.
Statistics New Zealand figures showed that the March fall followed a 0.6% fall in February.
A 5.3%, or $35 million, fall in motor vehicle sales accounted for a large proportion of the weakness in sales in March although supermarket and grocery stores (down $12 million) as well as some large-ticket item sales also fell.
On a regional basis, retail softness appeared to be mirroring developments in the housing market, he said.
The region with the sharpest fall in retail sales in the March quarter was Auckland, which also experienced a significant fall in house sales.
Waikato (down 0.7%) and Canterbury (down 1.1%) also recorded falls in retail sales.
"Housing market weakness is now clearly broadening and high food, petrol and debt servicing costs are siphoning household discretionary income away from other areas.
"Despite ongoing price increases for food and petrol, total spending in those areas looks to have peaked, an indication that a demand response to higher prices is under way."
The fall in spending on non-food and petrol retail sales in recent months had been notable, Mr Bagrie said.
Heavy retail discounting was expected in coming months as retailers tried to reduce stock levels and entice consumers to part with their dwindling discretionary income.
ANZ-National Bank remained "comfortable" with its view the Reserve Bank would begin cutting its official cash rate in September but was not ruling out a June 5 move, he said.
