Producer Price increases show effect of weaker A$

PPI for the first quarter of this year has come in with a higher than expected 0.9% q/q increase (final demand stage). This takes the year on year figure to 2.5% (from 1.9% in the previous quarter).
The increase has been caused by a sharp increase in the price of imports which grew by 8.4% over the previous year. Barring the GFC-impacted period of three quarters in ’08 and ’09 when the A$ fell sharply against the US$ (but then recovered even more strongly), this is the fastest rate of import PPI increase in almost 13 years. As the A$ has weakened so import prices have increased for Australian producers.
Domestic prices also moved up slightly (to +1.9% y/y) but have been below 2% since Dec 2011.
This increase in import prices at the producer level will inevitably flow through (with a delay) into increased CPI as price rises faced by producers are passed onto consumers. We have started to see some of this impact already with the Q1 CPI increasing to 2.9%, but this data suggests the pressure on CPI has further to go in coming quarters.

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