NZ: Producer Price Index

Tue Aug 18 17:45:00 CDT 2015

Actual Previous
Q/Q % change -0.2% -0.9%
Y/Y % change -2.2% -2.5%

June quarter output producer declined due to lower farm gate milk prices. Prices received (as measured by the output producers' price index (PPI)) and paid (as measured by the input PPI), both fell in the June 2015 quarter, down 0.2 percent and 0.3 percent, respectively.

Prices were down 5.5 percent for dairy cattle farming outputs and down 4.2 percent for dairy product manufacturing inputs. Both declines were due to lower farm-gate milk prices.

Output prices for electricity and gas supply slid 2.4 percent in the June 2015 quarter, due to lower electricity generation prices. Higher lake levels and lower wholesale electricity spot prices influenced the fall. Higher retail electricity and fuel (both petrol and diesel) prices led to higher input prices for many industries, including farming. The farm expenses price index rose 0.4 percent in the June quarter, compared with a 0.5 percent drop in the March quarter.

Producers in the construction industry continued to receive higher prices (up 0.5 percent) in the June 2015 quarter. This was largely influenced by the prices for constructing new residential buildings (up 1.3 percent), as measured by the capital goods price index (CGPI), which was up 0.6 percent overall.

In the year to the June 2015 quarter, the output PPI was down 2.2 percent, and the input PPI fell 3.3 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.