New Zealand Dairy And PPI

The latter gets more attention given the kiwi habit of not publishing monthly inflation data. Here are some things to consider ahead of the potential moves in the markets.

GDT Price Index

The Global Dairy Trade Price Index has lost some of its prior relevance to the NZD as the economy has diversified over the last few years. However, it is still important.

Over a fifth of New Zealand exports in dollar terms are dairy products. There is no fixed time of release, which makes anticipating the associated market moves a little harder.

Over the last couple of months, dairy prices have been far surpassing expectations. The last publication at the start of the month was forecast to have increased by 0.1% but jumped 6.7%.

Several Factors Involved 

Over 25% of New Zealand’s exports go to China, which has continued to increase demand despite slowing economic growth. However, in the immediate term, diplomatic issues related to the dispute over Huawei have led to the postponement of dairy and tourism initiatives between the countries.

The other factor is long-term price trends due to supply issues. Earlier today Danone, one of the world’s largest dairy consumers, stated in their quarterly report that they are expecting increased supply costs, going forward. This is due to ongoing supply issues, as it takes at least two years to bring new production online.

Even without the longer-term supply issue, the polar vortex in North America in the last 2 weeks has led to a significant drop in production. This is because the affected area is one of the world’s largest dairy producing regions. This, of course, will have an impact on the price. But, now that weather has normalized, it should help bring the price closer to the longer term trend.

GDT Price index is expected to rise by 2.2%, which is still considerably above the annual average.

PPI, Output, and Input.

PPI in New Zealand takes the place of monthly CPI. It is the leading measure of consumer price inflation. This is because the increasing output of producer prices is indicative of how much consumers are buying those products.

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