"Lower electricity prices, influenced by lower demand in summer months and higher lake levels, contributed to both the lower input and output PPI's in the latest quarter"
- Chris Pike, prices manager
Earlier this year RBNZ Governor Wheeler reiterated his pledge to start increasing interest rates soon, also mentioning he requires more information in order to asses the economy's outlook in March, bolstering the case of March's rate hike. At the same time, he noticed the central bank is concerned about the exchange rate and does not believe it will remain sustainable in the long run. Stronger inflationary pressure and the hike of the interest rates that would accompany them will definitely send the kiwi higher.
This week's PPI report, however, diminished hopes for a first rate increase next month, as leading indicator of consumer inflation surprised markets to the downside in the final quarter. New Zealand producer prices slumped 0.7% over the October-December period, missing analysts expectations for a 0.9% increase and posting a significant slowdown from third quarter's 2.2% gain. The main downside pressure came from electricity and gas supply input costs that sank around 10% over the observed period. Even despite the recent slump, on a annual basis the input PPI posted a 2.8% gain in the final quarter, while the output rose 3.8%, suggesting New Zealand consumer prices will increase as well as producers look to pass on increasing costs to consumers. The RBNZ targets CPI between 1-3% and according to official projections, the indicator will reach the midpoint in January.
© Dukascopy Bank SA