Producer Prices Index - Q4 2001

Data Flash (New Zealand)
Producer Prices Index - Q4 2001

Result: Producer output prices remained unchanged in Q4 (2.6% yoy), while input prices fell by 0.5% (1.8% yoy). Implication for markets: None - in line with expectations.

Commentary

Both indexes moved in line with our expectations and those of the market. We have constructed an index of overall business costs which weights together data from the Producer Price Index for inputs (which only captures raw material costs), the Capital Goods Price index, and the Quarterly Employment Survey measure of labour costs. This index suggests that business costs were unchanged in Q4, following several quarters of significant increases. As a result, annual business cost inflation declined to 2.6% from 4.1% previously. However, business costs are expected to rise by around 0.5% qoq in Q1.

With the local economy remaining surprisingly resilient, the risks of continued global weakness diminishing, and core inflation tracking above the midpoint of the RBNZ's 0-3% target band, we expect the RBNZ to begin to withdraw monetary stimulus over the course of this year, starting with a 25bps tightening at the 20 May Monetary Policy Statement.

Key Points

The Producer Price Index for inputs fell 0.5% qoq in Q4 (market expectation: +0.4%) and was 1.8% higher than a year earlier. The main contributor to this outcome was lower prices for crude oil and derivative products and weaker dairy and wool prices. The fall in `world' prices was partially offset by a weaker NZD during the quarter (around 2% weaker for the purposes of Statistics New Zealand's calculations).

The Producer Price Index for outputs was unchanged in Q4 (market expectation: 0.0%) and was 2.6% higher than a year earlier. Higher prices for petrol and chemical manufacturing, fish, and construction were offset by lower prices for petrol, wool, dairy and vegetables. In the absence of a weaker NZD, the outputs index would have declined during the quarter.

Ends

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