Squeeze on margins for quarter as costs rise

Manufacturers saw input costs climb 1 per cent in the quarter but their output prices rose just 0.1 per cent. Photo / Thinkstock

Firms' margins were squeezed in the December quarter as the prices they paid rose 0.5 per cent but the prices they received rose just 0.1 per cent.

Compared with a year earlier, input producer prices rose 4.2 per cent and output prices 3.4 per cent, Statistics New Zealand said.

Infometrics managing director Gareth Kiernan said the economic environment of global uncertainty and a patchy domestic economy were squeezing businesses' margins and making it hard for them to pass on even the modest cost increases they faced.

Manufacturers saw input costs climb 1 per cent in the quarter but their output prices rose just 0.1 per cent.

For the construction sector the gap was between a 0.5 per cent increase on the inputs side and a 0.3 per cent rise in output prices.

In the transport sector costs rose 1.9 per cent and output prices 1.4 per cent.

Kiernan said falling export commodity prices had put a cap on agricultural output prices over the past six months, cramping profits in the sector, while service sector firms focused on the domestic economy grappled with sluggish demand.

The picture of firms being forced to absorb cost increases lined up with forecasts of muted inflation over the year ahead, he said, and would leave the Reserve Bank relaxed about monetary policy settings in the near term.

On a more positive note, the BNZ-Business New Zealand performance of services index, also released yesterday, rose last month.

On a three-month rolling average basis it is 53.6, its highest level in five months. Any reading above 50 indicates expansion.

Of the components of the overall index, the employment indicator at 54.2 in January was at its highest since June 2007, said BNZ economist Doug Steel.

"The improvement is not a one-month phenomenon. The three-month average employment index has lifted to 53.4, a significant step up in this relatively stable series from 52 in December, and a clear acceleration from about 50 recorded six months ago."