NZ: Producer Price Index

Wed Nov 18 15:45:00 CST 2015

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Q/Q % change 1.3% -0.2%
Y/Y % change 0.2% -2.2%

Producer prices rose in the September 2015 quarter, influenced by higher meat and farm-gate milk prices, and a weaker New Zealand dollar. Prices received (as measured by the output producers' price index (PPI)) and paid (as measured by the input PPI), were up 1.3 percent and 1.6 percent, respectively. On the year, the output PPI was up 0.2 percent, and the input PPI was down 0.2 percent. The CGPI rose 3.6 percent.

Prices were up 10 percent for sheep, beef, and grain farmers. This meant meat product manufacturers had an 8.0 percent rise in their input prices. The prices they received rose 5.5 percent, due to higher meat export prices on the back of a weaker New Zealand dollar.''

In the September 2015 quarter, higher farm-gate milk prices led to higher prices received by dairy cattle farmers (up 8.9 percent) and paid by dairy product manufacturers (up 6.3 percent).

Prices for purchasing capital goods, measured by the capital goods price index (CGPI), rose 1.4 percent. Higher prices for plant, machinery, and equipment (up 2.4 percent) were influenced by the weaker New Zealand dollar.

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.