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Producer Price Increases at 10-Year High

Producers Price Index: June 2000 quarter

Producer Price Increases at 10-Year High

Producers' output and input prices have both recorded the largest annual increase for 10 years, according to the latest Producers Price Index (PPI) figures released by Statistics New Zealand. According to the June 2000 quarter figures, the annual increases of 3.9 per cent for outputs and 5.5 per cent for inputs are the largest annual increases recorded since June 1990. The latest increases follow a period of little change. For the five years from June 1994 to June 1999, the outputs index rose cumulatively by 3.7 per cent while the inputs index rose 2.6 per cent.

In the June 2000 quarter, the outputs index, which measures changes in prices received by producers, rose 1.0 per cent. The inputs index, which measures price changes in the costs of production excluding labour and depreciation costs, rose 1.2 per cent for the quarter. New Zealand-produced primary products were among commodities that contributed to the rise.

The movements recorded from the June 1999 to the June 2000 quarters have been influenced by both the depreciation of the New Zealand dollar against major trading partners, and the recent shock in crude oil prices. The Trade Weighted Index has fallen 11.1 per cent from May 1999 to May 2000, while crude oil prices have more than doubled in New Zealand dollar terms since the March 1999 quarter.

Assessing the flow-on effect of the latest PPI increases to future consumer prices is difficult, as not all producer prices flow into consumer inflation. This is largely because many products covered by the PPI are exported. Moreover, price movements in the Consumers Price Index are also tempered by other influences such as labour costs and the effect of competition on margins.

In addition, increases in prices vary depending on the industry. For example, the PPI outputs index for the retail trade industry increased 1.9 per cent in the last year. This was 2.0 percentage points less than the overall increase in producers' output prices.

Respondents contacted by Statistics New Zealand, including manufacturers, wholesalers and retailers, have attributed their reluctance to increase prices to the need to remain competitive. This may have contributed to output prices increasing less than input prices over the last year. However, some respondents have suggested that they may have to consider passing on any increased costs in the near future.

Ian Ewing Deputy Government Statistician END

There is a companion Hot Off The Press information release published - Producers Price Index, 25 August 2000

http://www.stats.govt.nz

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