NZ: Producer Price Index

Wed Aug 16 17:45:00 CDT 2017

Actual Previous
Q/Q % change 1.3% 1.4%
Y/Y % change 5.2% 4.1%

New Zealand producer output prices increased by 1.3 percent on the quarter in the three months to June, with year-on-year growth accelerating to 5.2 percent from 4.1 percent in the three months to March. Input prices rose 1.4 percent on the quarter in the three months to June, with the year-on-year change increasing from 4.2 percent to 4.7 percent.

The acceleration in both output and input price inflation in the three months to June was mainly driven by prices received and paid by meat and dairy producers. Dairy farmers saw particularly strong gains in the prices they received, up 53 percent on the year reflecting an ongoing surge in demand from Chinese consumers. Trade data released last month showed the value of New Zealand's dairy exports rose 45 percent on the year in June, with exports to China up 26 percent on the year.

Data released previously showed more subdued consumer price pressures in the three months to June, with the year-on-year change in the consumer price index dropping to 1.7 percent from a five-year high of 2.2 percent in the three months to March.

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.