NZ: Producer Price Index

Wed May 16 17:45:00 CDT 2018

Actual Previous
Q/Q % change 0.2% 1.0%
Y/Y % change 3.5% 4.7%

New Zealand producer output prices increased by 0.2 percent on the quarter in the three months to March, with year-on-year growth slowing from 4.7 percent in the three months to December to 3.5 percent. Input prices advanced 0.6 percent on the quarter in the three months to March, with the year-on-year change easing from 4.4 percent to 4.2 percent.

The fall in headline output price inflation in the three months to March was mainly driven by the manufacturing sector, with the year-on-year increase in producer prices there dropping from 8.9 percent to 3.7 percent. Within this sector, dairy product manufacturers saw a big drop in the year-on-year increase in their output prices from 24.9 percent to 0.4 percent. Output price inflation also slowed in the utilities sector and in wholesale and retail trade. This was offset by an increase in output price inflation in the primary sector from 9.2 percent to 10.6 percent.

Data released previously also showed consumer price pressures moderated further in the three months to March, with the year-on-year change in the consumer price index falling to 1.1 percent from 1.6 percent in the three months to December.

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.