KEY POINTS:
Sky-high wholesale power costs have driven up prices paid and received by producers in the June quarter by the highest margin since 1980.
Statistics New Zealand showed input prices - which measure price changes in costs of production, excluding labour and depreciation - rose 5.6 per cent in
the three months.
Producers' output prices - measuring changes in prices received by producers - were up 3.5 per cent, the largest quarterly rise since 1985 and above the median expectation of 2.1 per cent.
The electricity generation and supply outputs index rose 30.9 per cent in the latest quarter, and 41.7 per cent in the year to June - both the largest increases since the series started in 1994.
Within the inputs index, electricity generation and supply rose 50.8 per cent in the latest quarter and 85.4 per cent in the year to June - both the largest since the series began in June 1994. The increases were mostly due to drought and its impact on wholesale power prices.
"The headlines look ugly, but the drought is what has caused that, and the impact on wholesale prices has been largely unwound," said ASB Bank chief economist Nick Tuffley.
The air transport index rose 13 per cent in the second quarter and was the third-largest contributor, driven by higher prices for aviation fuel.
The implications were "pretty limited" from an inflation perspective, he said.
That was partly because prices had fallen back, so there would be an unwind in the third quarter, and also because there was not much relation to retail prices, Tuffley said.
However, Deutsche Bank NZ chief economist Darren Gibbs said the data provide a timely reminder of the substantial inflation pressures running through the economy.
"Despite a much more subdued economy and the recent weakening seen in key commodity prices, neither the Reserve Bank nor the market can be complacent about the outlook for inflation. They add to the run of data suggesting that, for the time being, the RBNZ is likely to proceed cautiously during this easing cycle," Gibbs said.
Wholesale trade also made a contribution to both the output and input indexes, with the outputs index up 6 per cent in the June quarter and the inputs index up 6.4 per cent.
In both cases the increase was driven by higher prices in the mineral, metal and chemical wholesaling sector, Statistics NZ said.
In the June year the outputs index rose 8.5 per cent and the inputs index rose 11.8 per cent.
SNZ also reported yesterday that the capital goods price index rose 1 per cent in the June quarter. Increased prices for plant, machinery and equipment, and higher construction costs for new houses were the main contributors to the rise.
In the year to June, the index rose 3.1 per cent.
- NZPA
WEATHER TOO BIG A FACTOR
An industry group says electricity input costs revealed in Statistics NZ data show how exposed the country is having so much weather-dependent power generation.
Major Electricity Users Group chief executive Ralph Matthes said he knew of no other country prone to such annual volatility.
"International investors considering NZ as a place to build manufacturing plants will not be familiar with this type of year by year volatility," he said.
High wholesale prices forced some users exposed to the spot market to close down parts of their plant from May to mid-July. Although North Island hydro generators now have plenty of water the South Island, where most of the country's power is generated, continues to have extremely low lake storage prompting fears of tight supplies during spring.
There have also been difficulties moving power south from the central North Island.
Matthes said the country need to have a sophisticated and competitive risk management market where businesses could hedge volatility risks otherwise there remained barriers for new manufacturing investment.
The figures also showed that rather than building more weather dependent production - hydro stations and wind farms - the country should be looking to build a more cost and price stable base load thermal plant.
