Dairy, oil drive producer input prices

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New Zealand manufacturers faced the fastest growth in input prices for 2 1/2 years in the first quarter on the back of rising dairy and oil costs.

Producer input prices rose 2.2 per cent in the three months ended March 31, according to Statistics New Zealand, the fastest quarterly pace since September 2008.

Most of the lift came from rising costs for dairy products and imported crude oil, which together accounted for 43 per cent of increase.

This year, local manufacturers have had to contend with political unrest in the Middle East raised fears over oil supply and pushed up prices, while at the same time paying more to dairy farmers, who have been enjoying near-record high prices for milk powder.

Dairy product manufacturing prices advanced 7.3 per cent, speeding up from the 3.4 per cent pace in the December quarter, and registering a 19 per cent lift in annual input prices.

The trade-weighted price of milk powder slipped 1.1 per cent in Fonterra Cooperative Group's online trading auction today to US$4,443 per metric ton, still close to early-2008 highs.

Fonterra yesterday said it is on track for record production after a mild autumn helped pasture growth. Output was 4 per cent ahead of the 1.3 billion kilograms of milk solids collected last year, in a season marred by dry weather.

Petroleum and coal manufacturing prices rose 16 per cent in the quarter, up from a 4.3 per cent gain in the December period, and are up almost 20 per cent from a year ago.

Electricity and gas supply prices rose 2.3 per cent, mainly due to high spot market pricing by Genesis Energy Ltd. on March 26.

Input prices extended their gain for a sixth quarter, and rose at an annual pace of 5.3 per cent, the largest since calendar year 2008.

Increases in producer output prices accelerated in the quarter to 1.7 per cent paced from 0.2 per cent previously, as dairy farmers enjoyed higher prices for their milk, and petroleum and coal manufacturers could pass on rising petrol prices.

Dairy cattle output prices rose 8.4 per cent, while petroleum and coal producers raised output prices by 9.8 per cent.

Dairy product producers passed on rising costs, lifting output prices 4.6 per cent, while meat and meat product producers raised output prices 8.5 per cent.

Mining output prices increased 7.3 per cent in the quarter.

The five sectors accounted for 61 per cent of the overall increase in the quarter.

In a separate release, the Capital Goods Index rose 0.2 per cent in the March quarter, with prices showing little movement since 2009. On an annual basis, the index is down 0.1 per cent.

Prices for plant and machinery fell 0.2 per cent in the three months ended March 31, with agricultural and forestry equipment prices extending the downward trend, falling 3.2 per cent on growing price competition for items such as tractors, Statistics NZ said.