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More fuel for inflation as producer prices jump 6.2%


Higher producer prices can tend to precede rises in consumer inflation.

Kawe Roes/Stuff

Higher producer prices can tend to precede rises in consumer inflation.

Indicators of future inflation are continuing their upward march.

Prices charged by companies for the goods and services they produced jumped by 6.2 per cent in the year to the end of September, while their input costs rose 7 per cent, Stats NZ reported.

Stats NZ said the increases in the two “producer price” indices were the largest in more than 12 years.

ANZ chief economist Sharon Zollner said the increase in producer prices was more grist to the mill for inflation, which is most commonly measured by changes in the consumer price index (CPI).

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But she said producer prices and the CPI were generally not that well correlated, as the broader measure of inflation took into account more variables such as wages and tax.

Stats NZ has already reported the CPI was up 4.9 per cent in the September quarter, when compared to a year prior.

Econ Talks – inflation spikes to 4.9 per cent in September quarter.

But the steeper jump in the producer price indices may still trouble the Reserve Bank as it considers its next move on interest rates, given producer prices – and in particular input costs – can tend to precede rises in the CPI.

The Reserve Bank published its latest quarterly survey on inflation expectations on Tuesday, which suggested consumers were on average expecting inflation to be 4.5 per cent in the year ahead and 5.6 per cent in five years’ time.

The latter figure was the highest estimate the bank has seen since it began reporting five-year expectations in 2008.

The last time the central bank carried out the survey around the end of July the expectation had been of a 3.8 per cent rise in prices in the year ahead.

People’s expectations of house prices eased in the Reserve Bank’s survey, but only very slightly, with those it surveyed on average expecting house prices to rise by 5.3 per cent in the coming year.

That was down from a forecast of a 5.5 per cent rise in its last survey.



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