|Q/Q % change||-0.8%||-0.9%||-0.1%|
|Y/Y % change||-2.5%||-0.8%|
March quarter producer prices declined thanks to lower fuel prices. Prices received (as measured by the output producers' price index (PPI)) and paid (as measured by the input PPI) were down 0.9 percent and 1.1 percent respectively on the quarter.
Output prices for the petroleum and coal product manufacturing industry sank 19 percent in the March 2015 quarter. This is the biggest quarterly decline since a 20 percent plunge in the December 2008 quarter when fuel prices also fell sharply.
Sheep, beef, and grain farmers received lower prices in the March 2015 quarter (down 11 percent), influenced by drought conditions and higher slaughter levels. The prices received by meat and meat product manufacturers were down 2.4 percent. Dairy cattle farmers received lower prices (down 4.6 percent). This is due to a further decline in the farm gate milk price, reflecting volatility in international dairy commodity prices caused by oversupply in the market. Prices received by dairy product manufacturers were down 5.2 percent, reflecting lower prices for dairy exports.
In the year to the March 2015 quarter, the output PPI was down 2.5 percent, and the input PPI fell 4.0 percent.
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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