Export commodity prices lurched lower last month, ANZ's commodity price index recording its steepest drop for more than two years.

In world price terms the ANZ index fell 4.5 per cent to an 18-month low.

The exchange rate provided almost no offset. In New Zealand dollar terms the index fell 4 per cent to a 2 low, 21 per cent below its peak in March last year.

The decline was broad-based, with 12 of the commodities in the index declining while only two (wood pulp and pelts) rose.


"The price of sheepmeat recorded the largest decrease in April, falling 12 per cent from a month earlier, to an 18-month low," ANZ economist Steve Edwards said.

Wool prices fell 9 per cent to a 16-month low. Dairy and aluminium prices fell 6 per cent, beef slipped 2 per cent, log prices 1 per cent and kiwifruit and seafood prices 0.5 per cent.

Dairy prices, which make up nearly 43 per cent of the basket, have fallen back to where they were in August 2010.

Nevertheless in New Zealand dollar terms dairy prices are still 5 per cent above their average during the 2000s and meat prices 24 per cent higher, Edwards said.

BNZ economist Doug Steel expects world prices for export commodities to ease further in the months ahead reflecting a general slowdown in world economic growth while supply is increasing and previously high prices burn off some demand.

Steel is optimistic of some stabilisation later in 2012 and improvement through 2013. "This is partly based on the current consensus view that world economic growth, on average, will be starting to improve."

But the weather is unlikely to remain as favourable as it has been and the dollar remains stubbornly high.

BNZ economists forecast a 10 per cent decline in the terms of trade - relative prices of the kinds of things New Zealand exports as against the kinds of things it imports - over the coming 18 months.

That would normally put downward pressure on the New Zealand dollar, Steel said.

"Whether that pressure turns into reality depends on many other factors, including foreign central bank actions, global risk appetite, and the domestic growth outlook relative to the rest of the world," he said.

"Even lower interest rates would not necessarily offset these factors and, at worst, potentially cause bigger problems elsewhere."