|Q/Q % change||-0.2%||-0.1%||-1.1%|
|Y/Y % change||-0.8%||-1.0%|
Producer prices were down in the December 2014 quarter thanks to lower dairy prices. Both output and input prices declined by 0.1 percent and 0.4 percent respectively. The decline was attributed to lower prices received by dairy manufacturers and paid to dairy farmers. In the year to the December 2014 quarter, the output PPI was down 0.8 percent, and the input PPI dropped1.9 percent. Prices received by dairy product manufacturers decreased 20 percent, and prices paid by the dairy manufacturing industry decreased 34 percent.
On the quarter, prices received by dairy product manufacturers were down 10 percent, reflecting lower milk powder prices. Prices received by dairy farmers were down 9.9 percent due to lower farm-gate milk prices. Petroleum and coal product manufacturing (down 7.5 percent) also contributed to the overall decrease in output PPI for the December 2014 quarter. Increased meat and meat product manufacturing output prices (up 8.3 percent) had some offsetting effect on the overall output PPI, due to higher beef export prices.
The producer price index is a measure of the change in the general level of prices for the productive sector of New Zealand. The release contains indexes for both outputs and inputs along with indexes for selected commodities.
The PPI measures prices at the producer level before they are passed along to consumers. Since the producer price index measures prices of consumer goods and capital equipment, a portion of the inflation at the producer level gets passed through to the consumer price index (CPI). By tracking price pressures in the pipeline, investors can anticipate inflationary consequences in coming months. A producer's price is the amount received by a producer from the purchaser of a unit of goods or services produced as output less any value added tax similar deductible tax, invoiced to the purchaser.
The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to manufacturers increase, businesses are faced with either charging higher prices or they taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace.
The bond market rallies when the PPI decreases or posts only small increases, but bond prices fall when the PPI posts larger-than-expected gains. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
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