While the quarterly producer prices are not a good guide to the quarterly consumer price index, yesterday’s PPI figures for the three months to December were welcome news.
Producer prices are all but flat in the three months ending December 31 at all levels of production and the main reason was the impact of the stronger Australian dollar.
Despite the sharp rise in the quarter in oil and other commodity prices, especially grains, the PPI at the final stage was only up 0.1% in the quarter, against the sharp 1.3% rise in the three months to September.
The PPI at the intermediate stage was flat, while at the preliminary stage it rose 0.1%, indicating that price pressure for business, especially manufacturing, eased in the quarter, thanks to the impact of the currency.
And the annual rate was 2.7% for the PPI at final stage, up from the 2.2% rate for the year to September.
And the Australian Bureau of Statistics said that over the year to December, at the intermediate stage the PPI rose 3.3% and at the preliminary stage it rose 3.8%.
Economists had expected the December quarter PPI to rise 0.5% for an annual rise of 3.2%, so the outcome took the market by surprise.
The latest figures on the PPI shows that while the cost of domestically produced items rose 0.7% in the quarter, the stronger dollar helped cut the cost of imported items by 4.4%.
"The domestic component recorded rises in the prices received for other agriculture (+18.3%), building construction (+0.8%) and accommodation (+8.6%).
"Partly offsetting these price rises were falls in the prices received for domestic motor vehicle and part manufacturing (-1.7%).
"The imports component decreased due to falls in the prices for industrial machinery and equipment manufacturing (-4.9%), other manufacturing (-10.2%) and electronic equipment manufacturing (-8.6%).
"Partly offsetting these price falls were rises in the prices for imported motor vehicle and part manufacturing (+0.2%)," the ABS said.
During the December quarter 2010, the prices paid by manufacturers for material inputs increased 0.2%, while the prices they received for their outputs increased 0.4%, indicating a small improvement in margins.
"But that wasn’t the case over the year with the ABS reporting that in the 12 months to December prices of material inputs increased 5.5%, while prices manufacturers received for outputs increased 3.8%.
"Price increases for products from metal ore mining (+1.3%), electricity supply (+4.2%), food product manufacturing (+1.3%) and machinery and equipment manufacturing (+1.6%) drove the rise in the cost of materials used in the manufacturing industries.
"Major contributors to these price rises were silver and zinc ores, electricity, sugar, raw and refined and bearings and parts. Partly offsetting these price rises were falls in the prices paid for agriculture (-0.8%).
"The increase in prices received for produced articles primary to the manufacturing industries was mainly due to rises in the prices of outputs primary to basic non-ferrous metal manufacturing (+4.3%) and sugar and confectionery manufacturing (+8.1%).
"Major contributors to these price rises were precious metal recovery and raw sugar.
"Partly offsetting these price rises were falls in the prices received for outputs primary to basic chemical manufacturing (-6.2%), and motor vehicle and motor vehicle part manufacturing (-1.7%).
"The price index of Materials used in house building increased 0.6% in the December quarter 2010.
"This follows an increase of 0.4% in the September quarter 2010. The most significant contributors this quarter were rises in the prices paid for ceramic products (+2.0%), timber, board and joinery (+0.9%), other metal products (+0.7%), and concrete, cement and sand (+0.7%).
"Through the year to December quarter 2010 the Materials used in house building price index increased 2.4%.
"This increase was mainly attributed to rises in the prices paid for timber, board and joinery (+3.2%), ceramic products (+6.6%), other metal products (+2.9%), other materials (+0.7%) and cement products (+2.7%). Partly offsetting these price rises were falls in the prices paid for steel products (-3.0%)."
The ABS said that all capital cities increased in the December quarter 2010 with price rises ranging from Melbourne (+0.4%) to Adelaide (+1.1%).
The sharper rise in the cost of building materials in the December quarter will have been spotted by the RBA.
