Skilled labour shortage lifts Australian PPI: ABS

The news: Final demand in Australia's producer price index (PPI) increased 0.9% in the December quarter, with moderate rises across most industries stemming from skilled labour shortages, ABS figures show. Sustained growth in construction outputs drove the rise, while high crude oil and energy prices in recent months continue to impact prices in other industries.

The numbers: The main growth factors included a 1.9% lift in building construction output, owing to ongoing skilled labour shortages and increases in margins to mitigate against risk of resource availability over longer-term projects. Motor vehicle and motor vehicle part manufacturing was up 2.4% due to increases in import prices and increased manufacturing costs of the past year. Meanwhile, output of heavy and civil engineering construction increased by 0.6% over the quarter due to ongoing skilled labour shortages and increases in operating costs of machinery. Final demand over the 12 month period to December rose 4.1%.

The context: Input prices for housing construction rose 0.3% during the quarter as later stage products remain high, with electrical equipment and other materials (paint and other coatings) still being impacted from limited labour supply and higher energy prices during recent quarters. There has also been a reduced demand for steel products, offsetting rises, and increased sea freight capacity has eased prices for imported materials. Over the past 12 months house construction inputs rose 2.4%.

PPI measures price inflation from the perspective of industries that produce goods and services, rather than measuring changes from the consumer's perspective, such as the Consumer Price Index. Because PPI measures price changes prior to value adding, they can be a good indicator of future price growth in the broader economy.