NZ terms of trade rises to 44-year high

Auckland port. Terms of trade rose to the highest level in about 44 years. Photo / File

New Zealand's terms of trade rose to the highest level in about 44 years in the first quarter as export prices rose more than three times faster than imports, led by dairy and forest products.

The terms of trade rose 5.1 per cent in the first quarter, Statistics New Zealand said, beating the 3.9 per cent increase forecast by economists in a Reuters survey. Export prices rose 9 per cent in the first three months of the year and import prices gained 2.7 per cent. Terms of trade is a measure of the purchasing power of New Zealand's exports abroad. The latest rise means 5.1 per cent more goods imports could be funded by a fixed quantity of goods exports than in the December 2016 quarter.

The terms of trade provides a more detailed reading of the flow of goods and services across the border than the monthly merchandise trade series because it shows how much changes in the value of exports and imports is driven by price and how much by volume. The value of exports rose 3.4 per cent to $11.8 billion, seasonally adjusted, in the first quarter, while the value of imports rose 6.2 per cent to $13.2b but export volumes fell 4.2 per cent while import volumes rose 1.2 per cent.

"The terms of trade sit just 0.3 per cent below the record high set back in June 1973. And with export prices still very healthy over recent months, we expect it is only a matter time before a new record is set," economists at ASB Bank said in a note.

Dairy led the gain in export prices, jumping 18 per cent in the first quarter as milk powder rose 20 per cent, butter gained 23 per cent, and cheese rose 8.8 per cent. Dairy prices are 34 per cent higher than the recent low of September 2016, but are still 21 per cent lower than the March 2014 high, Stats NZ said. Dairy values rose 1.2 per cent in the March 2017 quarter to $3b, while the seasonally adjusted dairy export volumes fell 11 per cent, to the lowest level since the September 2013 quarter.

Forest product export prices rose 11 per cent in the March quarter, led by a 15 per cent gain from wood, to reach their highest level since the series began, and topping the previous record set in September 2000 by 1.5 per cent, Stats NZ said. Seasonally adjusted forestry product volumes fell 6.1 per cent, to their lowest level since the March 2012 quarter. Seasonally adjusted forestry product values fell 0.4 per cent to $1.3b.

Petroleum and petroleum product prices, which aren't seasonally adjusted, led the gain in overall import prices. They rose 11 per cent in the March 2017 quarter, and 46 per cent for the year to March 2017. Import volumes fell 1.2 per cent in the March 2017 quarter, and values rose by 9.7 per cent. Stats NZ said a three-week shutdown at the Marsden Point refinery influenced the data.

Michael Gordon, acting chief economist at Westpac Banking Corp, said import prices were "up across a broad range of categories, suggesting a little more imported inflation pressure than we expected over the quarter. Notwithstanding the latest increase, though, import prices have been on a downtrend for several years now."

The terms of trade with China rose 5.3 per cent, and for Australia it rose 0.6 per cent, and for the US recorded a 0.5 per cent gain.

The services terms of trade rose 0.1 per cent in the March 2017 quarter, with prices for services exports up 1.1 per cent, led by 1.2 per cent gain for travel. Prices for services imports also rose 1.1 per cent.