The terms of trade reached the most favourable levels for more than 40 years in the March quarter as export prices rose and import prices fell.
The terms of trade is a measure of the international purchasing power of the country's exports. The latest rise, the fifth quarterly improvement in a row, means that 1.8 per cent more imports could be funded by a fixed quantity of exports than in the December 2013 quarter.
The terms of trade is now just 1.7 per cent off its all-time high 41 years ago, but that record may stand as the cumulative 23 per cent fall in dairy prices in Fonterra's fortnightly auctions since February has yet to be reflected in the prices of shipments crossing the wharves.
Despite a 1.8 per cent rise in the trade-weighted exchange rate, export prices rose 0.8 per cent in the quarter, to be 13 per cent higher than a year ago.
Meat prices rose 2.1 per cent in the quarter to be up 6.6 per cent for the year. The rise was influenced by higher prices for beef, Statistics New Zealand said, but venison and lamb also rose.
Dairy prices rose 2.3 per cent in the March 2014 quarter to be 42 per cent up on March last year and forest product prices were up 1.6 per cent for the quarter, making 10 per cent for the year.
But economists at ASB and the Bank of New Zealand expect falling dairy prices will show up in the June data in sufficient strength to see the overall terms of trade decline - by around 5 per cent, BNZ economist Craig Ebert reckons.
On the import side prices fell 1 per cent in the quarter, to be 3.9 per cent lower for the year.
The biggest contributor to the March quarter's decline was a 3.5 per cent drop in prices for crude oils and refined petroleum products.
ASB economist Nathan Penny expects the combination of the high New Zealand dollar and low global inflation to keep import prices low.
• Terms of trade just 1.7 per cent off the all-time high 41 years ago.
• Latest rise is the fifth quarterly improvement in a row.
• But falling dairy prices yet to be reflected in the prices of shipments.