Terms of trade reach record high in September quarter

New Zealand’s terms of trade hit a new record in the September quarter as cheaper petrol imports offset lower export prices, which have been buoyed by strong butter prices in recent months.

The terms of trade, which measure of the purchasing power of New Zealand’s exports relative to imports, increased 0.7 percent in the three months ended Sept. 30, its fourth quarterly gain, and eclipsing the previous high set in July 1973, Statistics New Zealand said. Export prices fell 1.9 percent in the quarter, while import prices dropped 2.6 percent. Still, the increase was lower than the 0.9 percent gain predicted in a Reuters survey of economists.

“The terms of trade increased over the last year, driven by high meat and dairy prices, especially butter, to reach the highest level since the series began in March 1957,” international statistics senior manager Daria Kwon said in a statement. “The new high in the terms of trade echoes the impact seen in the early 1970s when prices also rose for dairy and meat, as well as wool.”

That export price boom in the 1970s was short-lived after the UK joined the European economic community, reducing its purchases of New Zealand butter, and when the oil shock drove up fuel prices.

Forestry export prices showed the smallest decline in the quarter, falling 0.7 percent, followed by a 0.9 percent dip in dairy products. Wool prices faced the biggest drop with a 4.2 percent quarterly fall and sank 19 percent from a year earlier.

Petrol import prices dropped 12 percent in the quarter, leading the faster fall in overall import prices, followed by a 5 percent decline in plastics and plastic articles and 3.4 percent in textiles, clothing and footwear prices.

The New Zealand dollar rose 0.8 percent on a trade-weighted index basis in the quarter, which lowers the price of imported goods, while making exported items more expensive for foreign buyers.

The figures show export volumes rose 0.3 percent in the quarter, while the value of sales slipped 0.4 percent to $12.82 billion, while import volumes shrank 0.7 percent for a 4.9 percent drop in value to $12.77 billion.

The volume of wool exports jumped 17 percent for a 7.9 percent increase in value to $114 million, while forestry product export volumes increased 3.7 percent for a 3.6 percent gain in value to $1.52 billion. Dairy product export volumes shrank 5.7 percent for a 4.2 percent decline in value to $3.55 billion, and food and beverage export volumes slipped 0.3 percent for a 1.2 percent value decline to $7.98 billion.

The volume of imported petrol products fell 5.6 percent in the September quarter for a 17 percent slide in value to $1.15 billion.

(BusinessDesk)

NBR Business