NZ terms of trade rises to 44-year high as dairy, forestry drive up export prices

New Zealand's terms of trade rose to the highest level in about 44 years in the first quarter as export prices rose more than three times faster than imports, led by dairy and forest products.

The terms of trade rose 5.1 percent in the first quarter, Statistics New Zealand said, beating the 3.9 percent increase forecast by economists in a Reuters survey. Export prices rose 9 percent in the first three months of the year and import prices gained 2.7 percent. Terms of trade is a measure of the purchasing power of New Zealand's exports abroad. The latest rise means 5.1 percent more goods imports could be funded by a fixed quantity of goods exports than in the December 2016 quarter.

The terms of trade provides a more detailed reading of the flow of goods and services across the border than the monthly merchandise trade series because it shows how much changes in the value of exports and imports is driven by price and how much by volume. The value of exports rose 3.4 percent to $11.8 billion, seasonally adjusted, in the first quarter, while the value of imports rose 6.2 percent to $13.2 billion but export volumes fell 4.2 percent while import volumes rose 1.2 percent.

"The terms of trade sit just 0.3 percent below the record high set back in June 1973. And with export prices still very healthy over recent months, we expect it is only a matter time before a new record is set," economists at ASB Bank said in a note.

Dairy led the gain in export prices, jumping 18 percent in the first quarter as milk powder rose 20 percent, butter gained 23 percent, and cheese rose 8.8 percent. Dairy prices are 34 percent higher than the recent low of September 2016, but are still 21 percent lower than the March 2014 high, Stats NZ said. Dairy values rose 1.2 percent in the March 2017 quarter to $3 billion, while the seasonally adjusted dairy export volumes fell 11 percent, to the lowest level since the September 2013 quarter.

Forest product export prices rose 11 percent in the March quarter, led by a 15 percent gain from wood, to reach their highest level since the series began, and topping the previous record set in September 2000 by 1.5 percent, Stats NZ said. Seasonally adjusted forestry product volumes fell 6.1 percent, to their lowest level since the March 2012 quarter. Seasonally adjusted forestry product values fell 0.4 percent to $1.3 billion.

Petroleum and petroleum product prices, which aren't seasonally adjusted, led the gain in overall import prices. They rose 11 percent in the March 2017 quarter, and 46 percent for the year to March 2017. Import volumes fell 1.2 percent in the March 2017 quarter, and values rose by 9.7 percent. Stats NZ said a three-week shutdown at the Marsden Point refinery influenced the data.

Michael Gordon, acting chief economist at Westpac Banking Corp, said import prices were "up across a broad range of categories, suggesting a little more imported inflation pressure than we expected over the quarter. Notwithstanding the latest increase, though, import prices have been on a downtrend for several years now."

The terms of trade with China rose 5.3 percent, and for Australia it rose 0.6 percent, and for the US recorded a 0.5 percent gain.

The services terms of trade rose 0.1 percent in the March 2017 quarter, with prices for services exports up 1.1 percent, led by 1.2 percent gain for travel. Prices for services imports also rose 1.1 percent.

(BusinessDesk)