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Biggest hike in 20 years hits cost of production

Nov 20th, 2008 | By | Category: Latest News, News

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Prices paid by factories, farms and other New Zealand producers for raw materials and services have jumped up nearly 3% in the three months to the end of September.

This will result in higher costs for food and manufactured goods, according to the latest figures from Statistics NZ.

The rises – the largest in more than 20 years – are much more than economists predicted.

Prices of materials and fuels (input prices) rose more than three times what was expected at 3.7%.

Prices received by producers (output prices) rose 2.8% suggesting profit margins were squeezed. 

This will leave companies under pressure to minimise costs and unemployment figures will continue to rise, says economist Philip Borkin.
 
“Companies will lose a lot of money, which means in some cases staff levels will have to be reduced.”

In a sign of increasing unemployment, Air NZ today announced it would cut 200 staff, mostly from long-haul cabin crews.

The Labour Survey found unemployment rose from 3.9 to 4.2 percent in the latest quarter.

As the recession hits New Zealand a number of other major companies, including Fletcher Building, Carter Holt Harvey and Cadbury, have also had to reduce staff numbers.

For both production price indices, the majority contribution has come from wholesale fuel costs, which saw the output index rise 4.3% and the input 8.1%.

However, the figures are already out of date. There have been a lot of developments over the past weeks, so numbers should eventually drop off, says Mr Borkin.

“Because it’s the September quarter, it’s old news, even though the figures were only just released.

“Oil and fuel prices have already peaked. They have been reducing and should continue to drop off.”
 
For the year ending September, 2008, the producers’ inputs index rose 13.6 % and the outputs index rose 9.8%.

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