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Producer Price Index - Dec Q 1999

Data Flash (New Zealand)

Producer Price Index - Dec Q 1999

Key Points

Producer input prices rose by 1.5% over the December quarter, following a 1.4% qoq increase previously. The result was higher than average market expectations of +1.0% and reflected significant increases in commodity prices. Higher prices for oil, pulp and paper, and livestock inputs into meat manufacturing were key influences.

Producer output prices increased by 1.0% during the December quarter, in line with market expectations. Oil related price increases, as well as better prices for paper and agricultural products were key factors.

While higher international commodity prices, in combination with a weak NZD, dominated the PPI results, price increases for non-commodity inputs and outputs have also begun to accelerate over recent quarters.

Commentary

The PPI results, which also suggest strong increases in export and import prices over the December quarter, provide further evidence of significant pressure in the inflation pipeline. Yesterday's Capital Goods Price Index for Q4/99, which showed the highest quarterly increase since mid-1996, also falls into that category. Some of the producer price trends have already been reflected in the CPI (e.g. higher petrol and meat prices). However, the pass-through has been relatively modest so far, and the apparent squeeze of profit margins as a result of differential inflation rates between input and output prices suggests that significant upward pressure on the CPI can be expected during this year. We forecast CPI inflation to accelerate from 1.3% currently to 2.8% by the end of this year.

Ulf Schoefisch, Chief Economist, New Zealand,

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