Higher fuel prices squeeze producer margins in the second quarter

Friday 17th August 2018

Higher fuel prices continued to squeeze margins in the second quarter as the prices paid by producers lifted more than the prices they obtained for their goods.

Prices paid by producers, the input PPI, rose 1 percent in the three months ended June 30 and 3.7 percent in the year, Statistics New Zealand said. The output producers price index – or the prices producers get for their goods and services - rose 0.9 percent in the second quarter for an annual increase of 3.1 percent.

Fuel products are both imported and produced domestically in New Zealand. They can be further refined by the manufacturing sector or be sold directly to companies such as petrol stations and exporters. The price is pushed around by the prices of imported crude oil and domestic oil production, and the exchange rate. Oil prices have pushed higher over recent quarters and the New Zealand dollar has fallen sharply, down 7 percent so far this year against the US dollar.

"You cannot have a low currency, high oil price and increased wages" without affecting things, said Stuart Ive, senior dealer foreign exchange at OMF in Wellington.

In the June 2018 quarter, higher prices for imported crude oil increased the costs paid by the petroleum and coal product manufacturing industry, pushing them up 11.3 percent.

The higher cost for buying crude oil was passed on to petroleum products. The petroleum and coal product manufacturing industry received higher prices, up 10.9 percent, for petrol, diesel, other petroleum products such as aviation fuel and fuel oils.

Petrol bought by businesses rose 5.5 percent while diesel increased 9.8 percent. Higher costs for fuel flowed to other industries. For example, input prices for the road transport industry rose 2 percent in the June 2018 quarter, mainly due to higher petrol and diesel prices.

Within other sectors, input costs for construction rose 1.1 percent in the June quarter and 3.8 percent on the year. Input prices in the sector – which is facing capacity constraints – have ticked up fairly steadily over the past several years.

Quarterly output prices in construction gained 1 percent and were 3.3 percent higher than a year earlier.

Output prices for dairy cattle farming increased 0.9 percent while input prices lifted 1.7 percent. On the year, output prices rose 4.2 percent, while input prices climbed 4.4 percent.

(BusinessDesk)

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