Power pushes up producers’ prices

The price of power was the main contributer to the increase in the Producers’ Price Index  in the three months to June, Statistics New Zealand said today.

Ouptput prices went up 3.5% and input prices rose by 5.6%.

The rise in the outputs index is the largest quarterly rise since the June 1985 quarter, while the rise in the inputs index is the largest since the March 1980 quarter. Both indexes were mainly driven by higher prices for electricity generation and supply.

One business’s output becomes another’s input, so for example milk and grain are outputs for farmers but inputs for cheese makers and bakers.The electricity generation and supply outputs index rose 30.9 percent in the latest quarter, the largest rise since the series began. Higher output prices for electricity generation were recorded, with lower lake levels pushing up spot prices. In the year to the June 2008 quarter, the electricity generation and supply index rose 41.7 percent, which is also the largest annual rise since the series began.

 

Electricity producers cover those inolved in generation, transmission, distribution and retail and their inputs include fuel, business services, rent and power itself. I’m not sure how much the healthy dividends the Government gets from the power companies it owns contributes to the price rises.

Within the inputs index, electricity generation and supply rose 50.8 percent in the latest quarter and 85.4 percent in the year to the June 2008 quarter. Both movements are the largest since the series began in the June 1994 quarter. Lower lake levels were the cause of higher costs for electricity generation this quarter.

Ouch. We pump water for irrigation which makes power one of our bigger costs.

Another contributer to the PPI indexes is the wholesale trade which covers fuel and fertiliser and they are also big budget items for farmers.

Wholesale trade also made a contribution to both the PPI output and input indexes. The wholesale trade outputs index rose 6.0 percent in the June 2008 quarter, while the inputs index rose 6.4 percent. In both cases the increase was driven by higher prices in the mineral, metal and chemical wholesaling sector.In the year to the June 2008 quarter, the PPI outputs index rose 8.5 percent and the inputs index rose 11.8 percent.

 

If these input costs, most of which have a large imported component, went up when our dollar was relatively high they will almost certainly be higher in the next quarter because the dollar has been lower.

The increase in inputs has been greater than that for outputs which means we’re absorbing some of the costs. But even so each trip to the supermarket is a reminder that some of the increases get passed on to consumers.

I couldn’t find any 1kg blocks of cheese at the supermarket today, and the 700g block of edam I did find cost $11.99. I wonder if this is because there would be consumer resistance if they tried to sell bigger blocks at that per kilo price?

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