Terms of trade up despite oil increase

New Zealand's international purchasing power improved in the first three months of this year, despite the surge in the price of imported oil.

The terms of trade - the amount of imports that can be bought with a fixed quantity of exports - rose 1.1 per cent in the three months to March.

Export prices rose 3.2 per cent, mainly because of the fall in the dollar and a 23 per cent rise in aluminium prices.

The lower dollar also helped push up import prices, which rose 2.1 per cent, in part because of a 4 per cent rise in the cost of petrol and petroleum products, including a 9.8 per cent rise in the price of crude oil.

ANZ chief economist Cameron Bagrie said it was encouraging that the largest oil shock since the 1980s had "only knocked New Zealand's living standards marginally".

"A rise in New Zealand's terms of trade raises purchasing power and living standards."

Despite the rise in the price of oil, the terms of trade are 3 per cent lower than a year ago. Even so, they remain 6.4 per cent above the average over the past 10 years. In 1980, skyrocketing oil prices pushed the terms of trade down 15 per cent.

Bagrie said the country's purchasing power had largely remained intact this time around because prices for the commodities the country exported had stayed strong.

Also, in inflation-adjusted terms, the price of oil was about 30 per cent lower than it was in 1980.

Further, Bagrie said New Zealand was more energy efficient than it was a quarter of a century ago, so was less reliant on oil.

The price of imported petroleum and petroleum products is 51 per cent higher than a year ago. But UBS chief economist Robin Clements said it had so far had only a minimal effect on the country's purchasing power because the price of other imports - particularly electrical goods - had fallen.

On the rise

* Rose 1.1 per cent in the March quarter.

* Export prices up 3.2 per cent.

* Import prices up 2.1 per cent.