NZ producer input prices rise at slowest pace in almost two years, inflation still in check

Thursday 17th November 2011

New Zealand manufacturers faced the slowest growth in input prices for almost two years in the third quarter as cheaper milk prices at the farm gate led to lower costs for dairy product manufacturers.

The Producer Price Index’s input prices, which measures the change in prices of goods and services used by the productive sector, rose 0.6 percent in the three months ended Sept. 30, slowing from the 0.9 percent pace in the second quarter, according to Statistics New Zealand.

That was the slowest quarterly rise since December 2009, when the input price index rose 0.4 percent.

A 10.2 percent fall in dairy product input prices damped the overall increase, which were led by a 19 percent surge in electricity and gas supply input prices, the biggest quarterly rise since June 2008.

Output prices, which measure the changes in the price of goods and services produced in New Zealand, rose 0.2 percent, the slowest pace since December 2010. A 12 percent decline in cattle farming and a 3.6 percent fall in dairy product manufacturing held back gains in output prices, with the biggest upward contributions coming from electricity and gas supply, which rose 13 percent.

Bank of New Zealand economic Doug Steel said the pace of producer price growth reinforces the idea that inflation pressures are cooling after government data reported softer than expected consumer price inflation.

That gives the Reserve Bank more time to keep the official cash rate at stimulatory levels for longer, even though the central bank has previously indicated it wants to move to a tighter policy.

“The cooler inflation result in Q3 means they (the Reserve Bank) might delay that hike for the next while, depending on Europe,” Steel said.

BNZ expects the Reserve Bank to hike the official cash rate in June next year.

On an annual basis, PPI input prices rose 4.7 percent, while output prices increased 3.5 percent.

BusinessDesk.co.nz

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