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Producer input prices have biggest gain in 28 years

Tuesday 19th August 2008

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Prices paid by New Zealand businesses had the biggest gain in 28 years in the second quarter on surging prices for electricity and fuel.

Producer input prices rose 5.6% in the second quarter, accelerating from a 2.3% gain in the three months ended March 31, Statistics New Zealand said in a statement. Prices for electricity generation and supply soared 50.8%.

Producer output prices rose 3.5%, a sign that companies' profit margins are shrinking as they struggle to pass on higher costs to customers. The increases were higher than economists had predicted, adding to expectations the central bank won't rush its easing of interest rates.

The data is "a timely reminder that lingering inflation pressure remain," said Khoon Goh, senior markets economist at ANZ National Financial Group. The PPI report "reinforces to us the likelihood that the easing cycle will be staggered, with rate cuts for the rest of the year, followed by a pause, then a resumption in mid-2009."

The increase in input prices was the largest since March 2008 while output prices rose by the most since 1985.

The surge in power prices reflects low hydroelectric lake levels, which drove up spot power prices, and surging world prices for crude oil.

By Jonathan Underhill

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