Data Flash (New Zealand)
Producer Price Indexes - Q1 2002
Result: Producer output prices rose 0.4% qoq in Q1 while input prices fell by 0.1% qoq.
Implication for markets: In our view the market is pricing too much tightening. We expect 25bps hikes at both the 3 July
and 20 August meetings - the market is pricing a cumulative 75bps of hikes.
Commentary
In the context of the usual volatility, both indexes moved broadly in line with market expectations and continue to
point to a moderation in inflation pressures at the producer level. Given the recent sharp appreciation of the NZD (with
further gains expected), producer price inflation is likely to moderate further over the balance of this year,
notwithstanding a rise in crude oil prices (which will be reflected in the Q2 indexes).
We have constructed an index of overall business costs which weights together data from the Producer Price Index for
inputs (which captures raw material costs), the Capital Goods Price index, and the Quarterly Employment Survey measure
of labour costs. This index suggests that business costs rose 0.4% qoq in Q1. As a result, annual business cost
inflation declined to 2.5% from 2.6% previously. Annual business cost inflation is expected to decline below 2% during
H2 2002.
Key Points
The Producer Price Index for inputs fell 0.1% qoq in Q1 (market expectation: +0.2%) but was 2.8% higher than a year
earlier. The main contributor to this outcome was a 6% fall in meat prices. Lower prices were also recorded for crude
oil and derivative products. The fall was partially offset by higher prices for livestock. A slightly stronger NZD also
contributed to the decline (given the recent surge in the NZD, a far more substantial downward contribution will occur
in Q2 and Q3).
The Producer Price Index for outputs rose 0.4% qoq in Q1 (market expectation: +0.2%) and was 3.1% higher than a year
earlier. Higher prices for electricity generation, logs and wool were partially offset by lower agriculture prices. For
the second quarter in a row, the retail sector index posted a subdued 0.3% qoq rise.
Darren Gibbs, Senior Economist, New Zealand
***The attached research constitutes Deutsche Bank's proprietary information*** This, along with an extensive range of
other publications, is available on our web site http://research.gm.db.com
Please do not respond to this mailbox. If you would like to stop receiving this email or request additional research,
you can use our online subscription management tool at http://research.gm.db.com/MySubs. Please note that a login to our
web site is required for this. Alternatively, please contact your Deutsche Bank Sales Contact.