18 May 2012

Firms' profit margins under further pressure

9:08 am on 18 May 2012

Firms' profit margins are under further pressure, indicating inflation pressures are contained.

Official figures show prices received by local producers declined 0.1% in the first three months of the year while the prices they paid for inputs rose 0.3%.

Falling international commodity prices have hit food producers and Infometrics economist Benje Patterson says subdued demand means firms are struggling to pass on higher costs.

He says there have been three consecutive quarters where input price growth has outstripped growth in output prices which is squeezing manufacturers' profit margins.

Mr Patterson says manufacturers are facing increased costs which they are not able to pass on.

He says it's another factor which is pointing towards a cooling of inflation and inflationary pressure in the New Zealand economy is quite weak.

Mr Patters says adds support to the view that a cut to the Official Cash Rate cannot be ruled out, although if the dollar continues to fall it will decrease the probability of a rate cut.

Electricity prices rose due to lower hydro inflows.

On an annual basis, producer output prices rose 1.6%, while input prices, which are a measure of wholesale inflation, climbed 2.3%.

Meanwhile, the Capital Goods Price Index remained unchanged in the March quarter, with a fall in plant, machinery and equipment balanced by higher house building and construction.