It got a lot harder for New Zealand to earn its living as a trading nation over the first three months of the year, as export prices fell even faster than import prices.
Driven by steep falls for dairy products, export prices recorded their biggest quarterly drop for more than50 years, 8.2 per cent, while import prices fell 5.4 per cent.
The resulting fall in the terms of trade means it takes 3 per cent more exports to fund the same quantity of imports. It is the fourth quarterly decline in a row and takes the terms of trade back to where they were 18 months ago, though at the time that was still the most favourable level since the mid-1970s.
After the 20 per cent drop in dairy prices the next biggest influence on the export price index was a 28 per cent fall in oil prices, relevant because of front-loaded export production from the Tui oil field.
But the drop in world oil prices was also the main reason import prices fell, and the country imports a lot more oil than it exports.
"With imported oil prices heading higher again, the downward pressure on the terms of trade will continue in the June quarter," Westpac economist Michael Gordon said.
The 5.4 per cent drop in import prices is the first decline since September 2007 and occurred despite a weaker exchange rate, down 7 per cent on a trade-weighted basis over the quarter, which has an upward influence on prices.
Meanwhile export volumes rose 2 per cent over the quarter while import volumes dropped 9.8 per cent. As with prices the dairy sector was the biggest influence on the export side, shipping 14 per cent more seasonally adjusted than in the December quarter.
By contrast exports of meat, aluminium, oil, forest products and machinery all fell in volume terms.
The steep drop in import volumes brought them back to their lowest level since December 2004.
