Business cost data shows squeeze still on

A batch of data on business costs released today shows firms still under pressure.

Prices of goods and services used by businesses rose 0.5% in the last three months of last year, according to the producer prices index released this morning by Statistics New Zealand.

Prices received, on the other hand, rose 0.1%.

For the year, prices paid for business inputs have risen 4.2%, while prices received have risen 3.4%.

Taken over a two-year period, since December 2009 prices for business inputs have risen 8.9% while prices received have risen 7.6%.

The main drivers of increases in costs are hikes in prices paid by food manufacturers for dairy ingredients. Offsetting this was a quarterly fall of 3.8% in electricity and gas prices, but this comes after the previous quarter's massive rise of 19.3%. Iincreases in prices received by businesses is also dominated by farming: agriculture, fishing and forestry prices received rose 1.7% in the quarter.

The main factor was a 3.3% increase in dairy returns: however this followed two quarters of falling prices which fell 12.3% in September and 2.9% in June.

For the year, prices paid to dairy farmers fell 4.7%.

There is some upside: costs of capital goods have been relatively flat since mid-2009, partly due to the fact that most are sourced from overseas, often in economies which are recession, and thus New Zealand firms have been able to get lower prices.

The other factor, of course, especially since early last year, has been the high New Zealand dollar.

Today's data shows capital goods index rose 0.4% in the last three months of last year, with most of the increases dominated by construction cost increases, in the civil sector (up 1% for the quarter and 5.9% for the year) - and residential, up 0.4% for the quarter and 2.1% for the year.

Plant and machinery costs rose 0.3% for the quarter and 2.0% for the year.

Rob Hosking
Mon, 20 Feb 2012

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Business cost data shows squeeze still on