Data Flash (New Zealand) NZ Producer Prices (September 2000 Quarter)
Key Points Producer input prices rose 3.8% qoq in Q3 and were 8.0% higher than last year (market expectations: +1.5%).
Producer output prices rose 2.7% qoq and were 5.6% higher than in 1999 (average expectation: +1.2%).
The outturn reflected the direct effect of higher commodity prices (oil and export commodities) and the increasing
momentum of flow-on effects into other production sectors. Output prices rose by 7.8% qoq in the agriculture and
forestry sector, 3.6% qoq in the manufacturing sector, 3.5% qoq in wholesale trade, 1.5% qoq in retail trade, 1.3% qoq
in the transport sector.
Commentary Producer price data continues to confirm significant upstream price pressure in the NZ economy. The
correlation between PPIs and the CPI reinforces our view that CPI inflation will rise to nearly 4% by the middle of next
year. That projection assumes ongoing pressure on producer margins, which implies that there will be resistance to
immediately passing on lower costs once oil prices begin to fall next year and the NZD gains some upward momentum. As a
result of the re-building of margins, CPI inflation above 3% is likely to be more persistent than has been suggested by
RBNZ projections. That, in turn, raises the risk of second-round effects through higher wage inflation. Our assessment
of the inflation outlook relative to the mid-point of the 0-3% target band supports our expectation of further RBNZ
tightening steps next year - beginning with a 25 bps increase in the OCR on 15 March.
Ulf Schoefisch, Chief Economist, New Zealand, (64) 9 351 1375
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