The output producers price index, which represents what producers are paid, rose 2.4% in the three months ended September 30, its fastest quarterly gain in five years and up from a 1% increase in the June quarter, Statistics New Zealand said.
Output prices were up 4.1% on an annual basis, the biggest increase in two years.
That was driven by a 29% lift in output prices for dairy cattle farming, reflecting strong international milk prices on high demand from Asia.
Dairy farmer output prices have climbed 54% in the year ended September 30, the biggest annual gain since the series began in 1994.
“However, as we have been highlighting, the massive lift in dairy export income will have flow-on effects for the economy.”
Michael Gordon
Westpac Banking Corp economist
Dairy product manufacturers’ output prices rose 14% in the quarter on higher export prices for milk powder. It was the biggest quarterly increase since March 2010 and was a 37% gain in the year.
Westpac Banking Corp economist Michael Gordon said the rise wouldn't be a direct concern for the Reserve Bank of NZ in terms of inflation, with the more relevant consumer price index published last month.
“However, as we have been highlighting, the massive lift in dairy export income will have flow-on effects for the economy.”
During the September quarter, Fonterra lifted its forecast payout to farmers 80 cents to $8.30 a kilogram of milksolids in two reviews, while at the same time warning its earnings might be at risk because of the rising cost of buying milk.
The world’s biggest dairy exporter was embroiled in a botulism scare in August, which put its international reputation at risk.
The increased forecast milk payout underpinned a 2.2% advance in input producer prices, which is what manufacturers pay. It was the biggest quarterly increase since March 2011 and was up from a 0.6% rise in June. Input prices were up 3.3% on an annual basis, which was the biggest increase since December 2011.
Dairy product manufacturing input prices jumped 24% in the quarter and were up 45% in the year, lagging the output prices increase and indicating a squeeze on margins.
Dairy cattle farming input prices rose 0.5% in the quarter and were 0.4% lower on an annual basis, indicating farmers were enjoying fatter margins in the period.
Electricity and gas input prices fell 5.9% in the quarter because of lower generation prices on high lake levels, while output prices were down 4.4% in the period.
– BusinessDesk
