Most quarters there’s very few discernible links between the producer price index and its broader consumer price cousin.
What drives business costs quite often is diluted as it moves through the three levels of production, preliminary, intermediate and final stages.
And while you can’t say that a surge in costs for manufacturing or real estate will feed directly into the CPI, looking at the rises in fall in prices in the quarter (and what drove those changes) can shed some light on the CPI.
For example, in the latest PPI figures, released yesterday by the Australian Bureau of Statistics show clear indications of the impact of the higher dollar on import costs over the past year, but there were also noticeable rises in government charges, such as electricity and water which do show up in the CPI.
But overall, the September quarter PPI was no different to previous examples except that price rises at this level slowed noticeably in the three months to September when compared to the June quarter, both quarter on quarter and on an annual basis.
So the most important of the three, the final stage of production saw a rise of 0.6% in prices in the September quarter, for an annual rise of 2.7%
That was down on the 0.8% rise in the June quarter and an annual rate of 3.5%.
In the September quarter, at the intermediate stage, the PPI was up 0.1% and it rose by the same amount at the preliminary stage it also rose 0.1 per cent, the Australian Bureau of Statistics said on Monday.
Over the year to September, at the intermediate stage the PPI rose 4.5% (5.6% in the year to June) and at the preliminary stage it was up 5.6% (6.8% in the year to June).
Market forecasts had centred on a September quarter PPI rise of 0.8%.
The ABS said in commentary that the 0.6% increase at the final stage was "mainly due to rises in the prices received for electricity, gas and water (+8.2%), commercial fishing (+14.1%) and other agriculture (+3.7%)." It was "partly offset by falls in the prices received for building construction (-0.3%) and motor vehicle and part manufacturing (-1.3%).’
The ABS said the influences on intermediate prices were:
"Mainly due to rises in the prices received for electricity, gas and water (+2.8%), marketing and management services (+2.8%), and legal and accounting services (+2.6%)." They were "partly offset by falls in the prices received for grain, sheep, beef and dairy cattle farming (-5.8%).”
And at the preliminary level the 0.1% rise came was "mainly due to rises in the prices received for electricity, gas and water (+2.8%), marketing and management services (+2.8%), and legal and accounting services (+2.6%), partly offset by falls in the prices received for grain, sheep, beef and dairy cattle farming (-5.8%)."
In a note released yesterday national Australia Bank forecast a 0.3% rise in headline CPI tomorrow and a 0.7% rise in underling inflation (as measured by the Reserve Bank’s two methods, the Trimmed Mean and the Weighted Median.
The NAB said September quarter inflation is expected to have been fairly soft, reflecting continued weakness in economic data over recent months.
"There is clearly a divide between the performance of various sectors of the economy – with the mining and services related industries continuing to outperform retail, manufacturing, wholesale and construction – which the RBA will need to take into serious consideration when determining the most appropriate setting for monetary policy.
"While current global influences may provide the RBA with more motivation to cut rates in the near-term, we expect the economy to continue to strengthen from the flood-induced slowdown, while the mining investment boom will place added pressure on resources and demand.
"We envisage that a boost to domestic demand will strengthen the labour market, and therefore add to wage and costs pressures.
"As such, while near-term pressures appear relatively mute, the medium-term outlook appears to be consistent with rising price pressures, and it is this which supports our expectation that further policy tightening will be necessary to contain inflation eventually."
