Producer prices fall in Q3, led by electricity, dairy products

New Zealand producer input and output prices fell last quarter, led by electricity and dairy products, confirming there is still little sign of inflation pressures in the economy.

Producer input prices, or prices paid by producers, fell 1%, the first quarterly decline since the third quarter of 2009, after a 0.6% gain three months earlier, Statistics New Zealand says.

Output prices, or prices received by producers, fell 0.9%, the biggest drop since the third quarter of 2009, after gaining 0.3% in the second quarter.

The government statistician already released inflation data for the third quarter last month, showing the consumer price index rose a less-than-expected 0.3%, for an annual pace of 0.8%, below the central bank's 1% to 3% percent target band.

"Compared to the CPI, the PPI is more heavily weighted towards exported and imported items, so to a large degree the price drops in Q3 reflect global forces that were already known," Michael Gordon, senior economist at Westpac Banking Corp, says.

Electricity and gas input prices tumbled 15% in the latest quarter, mainly reflecting weaker power prices after higher hydro-storage lake levels and spot market conditions, the government statistician says.

Input prices for petroleum and coal manufacturers fell 9.3%, reflecting lower prices for imported crude oil.

Those for dairy manufacturers slid 6.8%, reflecting Fonterra's milk forecast payouts for the 2012-13 season.

Output prices for electricity and gas supply dropped 11.5%, mainly because of lower generation prices  – the biggest quarterly decline since December 2008. Output prices for dairy manufacturing fell 10% on lower prices for whole and skim milk powder.

Dairy cattle farming fell 9.4%, reflecting lower farm-gate milk prices.


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