Westpac warning on PPI

Press, 27 June 1989, Page 24

Westpac warning on PPI

Wellington reporter Inflation-watchers are warned not to ignore the Producers Price Index by the latest Westpac Weekly Commentary. Despite recording producers’ input prices rising at a higher than expected rate of 1.9 per cent in the March quarter this year, it seemed to generate little interest, Westpac noted. The annual rate for the PPI of 6.3%, put New Zealand ahead of all its main trading partners. Australia, with a rate of 6.1% and the United States, at 6.2%, were the closest.

“While our rate of consumer price inflation is currently well below that of Australia, the United Kingdom, and the United States, it is not consumer price movements, but producer price movements, that determine our competitive position in the world market.

“If our producer prices increase at a faster rate than our trading partners, then we begin to lose price competitiveness,” said Westpac. Cost increases were mainly owing to the lower New Zealand dollar and historically high world commodity prices.

Manufacturers, with an 8.1% increase over the March year, had fared worse than agricultural producers. But while the PPI for March “must have rung a few alarm bells at the Reserve Bank,” the Westpac economists are predicting the PPI will only rise for one more quarter, peaking at 6.6%.

It should then fall to an annual rate of 4.4% by March, 1990, and 3.5% the following year.