PPI rises above economists' forecasts in June quarter

Driven by higher fuel prices, the Producers Price Outputs Index, rose 1.2 per cent and the inputs index rose 2.0 per cent in the June quarter, Statistics New Zealand said today.

The PPI - which measures wholesale prices and is an early indicator of consumer price inflation - jumped 4.7 per cent in the June year for inputs and 3.0 per cent for outputs.

The quarterly rise was much steeper than economists' forecasts of about 0.9 per cent.

The annual rise PPI inputs index was the largest since a 6.2 per cent jump in the September 2001 year. The quarterly rise inputs rise was also the largest since September 2001.

It was the fifth consecutive quarterly rise for both the inputs and outputs indexes.

The major contributor to the rise in the PPI outputs index was a 1.8 per cent increase in the wholesale trade index. The main driver behind the increase in this index was higher prices in the mineral, metal and chemical wholesaling sector, which reflected higher petrol and avgas prices.

The most significant downward contribution to the PPI outputs index was in the finance index, which fell 2.1 per cent due to increased competition between banks, resulting in lower charges in financial intermediation services.

Rising energy costs were the major driver of the 2.0 per cent rise in the inputs index, with the wholesale trade, air transport, and construction sectors recording the most significant contributions.

The rising price of crude oil led to a 4.8 per cent rise in the wholesale trade index. Increasing aviation fuel costs saw the air transport index move upward by 10.5 per cent, while the increasing cost of fuel was the main contributor to a 2.6 per cent rise in the construction index.

There were no significant downward movements in inputs. The top 16 contributors all recorded upward quarterly price movements.

Despite the higher inflation pressure from today's data, ANZ/National Bank economist Sean Comber said he didn't see it as "a smoking gun to higher interest rates, and the OCR (Official Cash Rate) is likely to remain at 6.75 per cent for some time".

"One of the points we're taking from the release are the continued signs of non-labour pricing pressure, which will heighten the Reserve Bank's unease.

"Margins are curtailing the pass through to domestic inflation but the issue is how long this can continue."

Deutsche Bank economist Darren Gibbs said there was a lot of pressure in the production pipeline in terms of inflation "but I guess the question is 'is this going to feed through into the CPI at some stage?'."

He said in recent times, there had not been a very close link.

"But I guess if there is any economy where PPI pressures are going to feed through to CPI, it's an economy like New Zealand where you have very stretched resources. "It's not something that the market will react to in a big way, but it's something that the Reserve Bank will be mindful of going forward."

- NZPA and Reuters