Terms of trade sink to 3-year low as dairy falls

Import prices fell 0.6pc in the last quarter, led by a 2.6pc fall in machinery. Export prices fell 1.9 per cent. Photo / Thinkstock

New Zealand's terms of trade unexpectedly fell to a three-year low in the fourth quarter as prices of dairy exports extended their slide and fish export prices fell.

The terms of trade fell 1.3 per cent in the fourth quarter from three months earlier, according to Statistics New Zealand. A 1.3 per cent gain was expected, based on a Reuters survey.

The trade-weighted index of the New Zealand dollar fell to 75.62 from 75.85 before the report was released. The TWI rose 1.3 per cent in the fourth quarter. Confirmation of the continued slide in dairy prices comes after the government declared drought in Northland, with other region's likely to follow, which will reduce milk production and drive up costs this season.

The terms of trade have now declined for six straight quarters and are currently 11 per cent below their peak in the second quarter of 2011, the government statistician said. Terms of trade measures how much imports can be bought with a fixed quantity of exports.

Export prices fell 1.9 per cent in the fourth quarter, after a 6.3 per cent decline in the third quarter. Dairy prices have also fallen for six quarters and fell 2.8 per cent in the final three months of 2012. In the year ended in the fourth quarter, dairy prices dropped 22 per cent.

Fish export prices fell 4.5 per cent to be 7.2 per cent lower in the year. Prices of petroleum products rose 2.1 per cent.

Import prices declined 0.6 per cent in the fourth quarter, led by a 2.6 per cent decline for mechanical machinery. Prices of petroleum products rose 3.6 per cent.

Prices for services exports rose 0.9 per cent in the fourth quarter, reflecting higher prices for travel, while prices for services imports fell 1.1 per cent, also influenced by travel.

Export volumes fell 0.5 per cent in the fourth quarter, with dairy the largest contributor to the decline. Import volumes fell 2.2 per cent, on a decline in petroleum products.