Businesses get some reprieve in March quarter on cheaper prices

Friday 17th May 2019

Businesses got a reprieve in the March quarter as cheaper wholesale electricity helped push down the prices producers paid in the period.

Prices paid by producers, known as input prices, fell 0.9 percent in the March quarter, its first contraction since March 2016, according to Stats NZ's producers price index. The quarterly decline was primarily from a 12 percent drop in the price of electricity generation, which spiked last year when a shortage of gas coincided with low hydro-lake storage.

Margins improved in the quarter, with prices received by producers, or output prices, down only 0.5 percent. The steepest decline was for petroleum and coal product manufacturers, whose prices were down 9.2 percent from December. Prices received by electricity suppliers were down 7 percent.

"Prices were higher than normal in the December 2018 quarter, mainly due to the temporary closure of a key supplier of gas-fired generation, the Pohokura gas field, for maintenance and lower hydro lake levels," business prices manager Sarah Johnson said in a statement. "This meant higher-cost generation filled the gap, driving up wholesale electricity prices."

Businesses remain pessimistic about the prospects for profitability, with a tight labour market contributing to rising cost pressures, while at the same time struggling to pass that on to customers.

The PPI showed producers' margins were still squeezed on an annual basis, with output prices up 2.6 percent from a year earlier, compared to a 3.1 percent increase in input prices. Consumer prices rose at an annual 1.5 percent pace in March.

Rental and hiring services output prices jumped 21 percent from a year earlier, followed by a 10 percent increase in electricity and gas supply output prices. Dairy cattle farming output prices were down 1.6 percent and dairy product manufacturers output prices fell 1.1 percent.

Electricity and gas supply input prices climbed 11 percent from a year earlier, while transport equipment manufacturing input prices were up 7.8 percent and telecommunication, internet and library services inputs rose 7.1 percent. Dairy cattle farming input prices rose 4.5 percent from a year earlier while input prices for dairy product manufacturers fell 0.4 percent.

(BusinessDesk)

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