NZ: Producer Price Index

August 16, 2016 05:45 CDT

Actual Previous
Q/Q % change 0.2% -0.2%
Y/Y % change 0.5% 0.1%

Producer prices rose in the June 2016 quarter, mainly influenced by fuel, electricity, and dairy prices. Input prices rose 0.9 percent, and output prices rose 0.2 percent. Input prices measure how much producers pay for the goods and services they use. Output prices measure how much producers receive for the goods and services they produce.

The farm expenses price index rose 0.2 percent, influenced by higher diesel prices. The capital goods price index rose 0.9 percent in the June 2016 quarter, influenced by higher prices for purchasing and construction of new residential buildings.

Higher petrol prices and housing-related costs influenced the consumer price index (CPI) rise in the June 2016 quarter. The CPI rose 0.4 percent. Excluding petrol, the CPI rose 0.2 percent. Wage inflation as measured by labour cost index (salary and wage rates) also rose 0.4 percent in the June 2016 quarter.

The Producer Price Index (PPI) 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 production outputs and production 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.