NZ: Producers Price Index - Q1 2001

Data Flash (New Zealand)

Key Points

Producer input prices fell 0.9% qoq in Q1 (market expectation: -0.5%) but were 7.8% higher than a year earlier. Lower oil prices were a key factor, helping to reduce prices significantly in the wholesale and transport sectors. Pulp prices also fell. However, input prices in the non-tradeables sectors of the economy - especially the service sector - continued to rise at rates well above that consistent with the RBNZ's inflation target.

Producer output prices fell 0.2% qoq in Q4 (market expectation: +0.6%) but were 5.7% higher than a year earlier. Again lower oil and pulp prices were key contributors. Prices across a wide range of other outputs continued to rise substantially, largely reflecting the lagged pass-though of past pressures on input costs.

Commentary

The moderation in headline producer price inflation during Q1 was to be expected given the reduction in crude oil prices and the sharp 5.6% qoq appreciation in the trade weighted NZD. Our expectation of a gradually appreciating NZD and flat to slightly lower world commodity prices over the remainder of this year implies that pressures on the Inputs Index - which measures only intermediate goods - will be subdued. However, pressures on the Output Index and at the retail level are expected to persist. Our index of overall business costs, which weights together the PPI Inputs index, the Capital Goods Prices Index, and the QES market of labour costs, suggests that core CPI inflation will continue to linger in the upper half of the RBNZ's 0-3% target band over the coming year.

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