Producer prices fall on dairy manufacturing inputs

Prices for dairy products have weakened this year as farmers increased production to take advantage of higher prices. Photo / Mark Mitchell

New Zealand producer input prices fell in the third quarter as lower farmgate milk prices reduced input costs for dairy manufacturers, adding more evidence that inflation in the local economy is subdued.

Input prices declined 1.5 percent in the three months ended Sept. 30, after dropping 1 percent in the second quarter, while output prices fell 1.1 percent, according to Statistics New Zealand. Inputs rose 2.2 percent from a year earlier and outputs rose 2.4 percent.

Input prices for dairy product manufacturing contributed most to the quarterly decline, tumbling 23 percent, the largest decline since the third quarter of 2002, when they fell 24 percent. In the year ended in the September quarter, dairy manufacturing inputs dropped 28 percent, the first decline since the first quarter of 2013.

"The latest fall in the dairy product manufacturing input price index reflected the latest milk payout forecast price for the 2014/15 season," the government statistician said.
"The recent fall in global dairy commodity prices, strong global production, a build-up of inventory in China, and falling demand in some emerging markets all influenced this fall."

Government figures last month showed the consumers price index rose 0.3 percent in the third quarter for an annual pace of 1 percent, the bottom of the Reserve Bank's target band. The quarterly pace was below the Reserve Bank's 0.7 percent forecast.

Dairy cattle farming output prices made the biggest contribution to the decline in total output prices, falling 28 percent, the second quarterly decline. The government statistician attributed this to lower farmgate milk prices paid to dairy farmers. In the year to the September 2014 quarter, the output price index for dairy cattle farming fell 34 percent, a turnaround from a year earlier, when prices surged 54 percent.

Output prices for dairy product manufacturing fell 8.7 percent, driven by lower prices for milk powder, butter and cheese. Output prices for forestry and logging fell 10 percent, reflecting lower local and international demand and a build-up of logs in China.