Data Flash: Producer Prices Q2/2000
Data Flash (New Zealand) Producer Prices Q2/2000
Key Points
Producer input prices rose 1.2% qoq in Q2 and were 5.5% higher than in mid-1999. Producer output prices rose 1.0% qoq
and were 3.9% higher than last year. Higher commodity prices and the flow-on effects into manufacturing production and
the distribution sector were the key drivers of both indexes. Surprisingly, despite the collapse in building activity,
construction cost inflation continued at an annualised rate of around 2.5%.
Key Points
The PPI data confirmed the upstream price pressure in the NZ economy related to high prices of oil and other
commodities, as well as the weak NZD. The PPI data is consistent with our estimate of Q2 import price inflation in
excess of 4% qoq (data to be released on 11 September). Such a figure and the continued NZD decline highlights the
significant upside risk to the RBNZ's forecast of -0.6% for import price inflation over the year to March 2001. Upstream
price pressures and flow-on effects into the CPI are going to be significantly more problematic than the Bank
acknowledged in its latest Policy Statement. Comments by importers and major retail chains about the inability to hold
prices in the light of external cost pressure have weakened the argument that soft domestic demand will prevent a major
pass-through into the CPI. We continue to forecast annual CPI inflation to reach 3% over the next few quarters and
remain above 2% for a prolonged period. It will be a major challenge for the RBNZ to prevent trend inflation from
settling above 2% without obstructing the required adjustment of the economy to a lower dollar.
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