Squeeze on margins in power industry

Last updated 13:18 20/02/2013

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Producer prices are weak, with a big jump in hydro power lake levels pushing electricity prices down steeply in the December quarter.

The prices paid for goods and services used by producers down by 0.3 per cent in the December quarter, while the prices they received for their output fell 0.1 per cent.

Statistics New Zealand said lower electricity generation prices contributed to both the output and input Producer Price Index, PPI, falls in the latest quarter.

In the December 2012 quarter, the electricity and gas supply output price index was down 8.0 per cent while the input price index fell only 5.8 per cent.

Infometrics economists said the greater fall in the power output index than for inputs showed margins in the electricity industry were being squeezed as demand stagnated.

Lower generation and retail prices were due to higher hydro lake storage and to wholesale electricity spot market conditions.

The output price index for meat and processed meat products fell 2.2 per cent, reflecting lower prices for both lamb and beef.

The main rise in the output PPI was for dairy cattle farming (up 4.2 per cent) due to increased farm-gate milk prices. The rise for dairy cattle in the December quarter followed three consecutive quarters of declines.

Infometrics said dairy manufacturing output prices were flat in the quarter, but the continued buoyancy in international dairy prices should mean dairy manufacturers get better returns in the March quarter.

Profit margins in construction improved, rising 0.7 per cent, compared with input costs up 0.3 per cent.

But with a high New Zealand dollar, pricing pressure was expected to remain subdued outside the dairy and construction sectors in the March quarter, Infometrics said.

With a still weak job market, the Reserve Bank would be under no pressure to lift official interest rates until late this year.

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- BusinessDay.co.nz

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