Producer prices fall in second quarter, led by lower prices for milk and electricity generation

New Zealand producer prices fell in the second quarter, led by lower prices for milk and electricity generation, with input costs declining faster than outputs.

Prices received by producers slipped 0.2 percent in the three months through June for a 2.2 percent annual decline, Statistics New Zealand said. Prices paid by producers dropped 0.3 percent in the quarter for an annual 3.3 percent decline, the agency said.

The quarterly declines were led by a 5.5 percent drop in dairy cattle farming outputs and a 4.2 percent decline in dairy product manufacturing inputs due to lower farmgate milk prices, the agency said. A weaker New Zealand dollar offset some of the impact, with dairy product manufacturers' prices up 1.6 percent.

Meanwhile, lower prices for electricity generation, due to higher lake levels and lower wholesale electricity spot prices, led to a 2.4 percent decline in the price received by producers and an 8.6 percent fall in the prices paid, Statistics New Zealand said.

For farmers, costs rose 0.4 percent in the June quarter, following a 0.5 percent decline in the March quarter, due to higher retail electricity and fuel prices.

In the construction industry, producers achieved a 0.5 percent lift in prices in the quarter, mainly due to higher prices for building new houses. However costs rose 0.7 percent reflecting higher prices in building construction and construction trade services.

The capital goods index, which measures the prices for purchasing capital goods, rose 0.6 percent in the quarter led by a 1.3 percent increase in the price of constructing residential buildings, mainly new houses, the agency said. Non-residential building prices increased 0.6 percent in the quarter, reflecting increased labour costs and higher imported material prices.

The agency said export log prices dropped 25 percent in the latest quarter amid lower export demand and oversupply in overseas markets. That's the biggest decline since the September 2011 quarter when they dropped 28 percent. In contrast, domestic log prices rose 1.9 percent on higher domestic demand.

Prices received by producers in the forestry and logging industry fell 7.4 percent because of the lower export demand, while prices they paid rose 0.5 percent, reflecting higher costs for domestic logs and diesel.

Wool prices rose 8.9 percent in the quarter, following two consecutive quarterly falls, amid strong demand at wool auctions and a weaker New Zealand dollar.

The statistics agency said wage inflation outpaced consumer price inflation in the quarter, with salary and wage rates up 0.5 percent in the quarter and 1.6 percent in the year, compared with a 0.3 percent gain in consumer price inflation.

(BusinessDesk)