NZ: Producer Price Index

November 20, 2016 04:57 CST

Actual Previous
Q/Q % change 1.0% 0.2%
Y/Y % change 0.1% 0.5%

New Zealand producer prices rose in the three months to September, with input prices increasing 1.5 percent on the quarter and output prices increasing by 1.0 percent.

These increases in the headline numbers were largely driven by sharp increases in dairy prices. Prices received by dairy farmers rose 28 percent on the quarter in the three months to June, while those paid by dairy product manufacturers rose by 22 percent.

Excluding the impact of farm-gate milk prices, both producer output and input prices would have risen by 0.3 percent on the quarter.

In year-on-year terms, input price inflation fell from 0.3 percent in the three months to June to 0.1 percent in the three months to September, while output price inflation slowed from 0.5 percent to 0.1 percent.

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.