Producer prices rise in first quarter on higher electricity costs

Producers Price Index: March 2014 quarter

New Zealand producers' input and output prices rose in the first three months of the year, driven by higher costs to generate electricity because of low hydro-lake levels and more expensive thermal generation.

Producer output prices, which measure the prices received by New Zealand producers, rose 0.9 percent in the three months ended March 31, turning from a 0.4 percent decline in the December quarter, Statistics New Zealand said. Input prices, representing the prices of goods and services used by local producers, rose 1 percent in the quarter, from a 0.7 percent drop in the prior period. On an annual basis, output prices were up 4 percent, and input prices 3.1 percent. (See graph below)

The increase was led by a 14 percent gain in output prices for electricity and gas supply, and a 20 percent jump in input prices.

"The higher prices for electricity generation contributed to both the higher input and output PPIs in the latest quarter,"' prices manager Chris Pike said in a statement. "This often happens in March quarters, due to spot-market conditions and low lake levels."

Rising producer prices come as the Reserve Bank steps up efforts to curb the threat of future inflation, which has been relatively benign in recent years. Consumer prices rose at an annual pace of 1.5 percent in the March quarter, while labour costs were up 1.6 percent.

Dairy product manufacturers continued to face a margin squeeze, with a 0.7 percent increase in output prices, while input costs rose 3.1 percent. Dairy manufacturers have had input costs jump 39 percent in the 12 months ended March 31, while output prices advanced 31 percent.

Dairy cattle farmers have seen the reverse, with output prices up 4 percent in quarter, faster than the 1.2 percent increase in input costs. Annual output costs for dairy farmers have surged 47 percent, while input prices rose just 0.5 percent.

Fonterra Cooperative Group, the world's biggest dairy exporter, is forecasting a record payout to farmers of $8.65 per kilogram of milk solids for the coming season, though falling prices in recent auctions has raised speculation that may be lowered.

Construction output prices rose 0.7 percent in the quarter for an annual increase of 2.8 percent, while input prices were up 0.4 percent in the quarter and 1.2 percent in the year.

In a separate release, the capital goods price index, which measures changes in the price of new fixed assets bought by local producers, rose 0.6 percent in the three months ended March, for an annual rise of 2.1 percent. That was led by a 1.1 percent increase in residential building due to higher costs for building new dwellings. Residential building prices were up 4.6 percent on an annual basis, the biggest yearly increase since March 2008.

(BusinessDesk)

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