44-year record export price fall

By BRIAN FALLOW

Stark evidence that the export commodity tailwind has run out of puff was provided by Statistics New Zealand's overseas trade indices yesterday, which recorded the steepest quarterly decline in export prices since 1958.

Export prices fell 5.9 per cent in the June quarter, but import prices fell only 1.4 per cent.

The resulting 4.5 per cent deterioration in the terms of trade - a measure of the international purchasing power of a basket of New Zealand's exports - dragged it back to levels prevailing in the mid-1990s. Economists expect further declines.

Dairy prices fell 16.7 per cent in the quarter, to be 27.5 per cent lower than a year ago. Meat prices fell 4.6 per cent but are still fractionally higher than a year ago.

The decline in export prices was offset by a 4.8 per cent improvement in export volumes over the quarter, led by forest products (up 20 per cent), dairy products (13 per cent) and meat (7 per cent).

But last week's wholesale trade survey recorded a sharp drop in inventories, suggesting the lift in export volumes was largely filled from stocks rather than new production, Deutsche Bank economist Darren Gibbs said.

Bank of New Zealand economists found it encouraging that non-food manufactured export volumes rose 4 per cent in the quarter, making 8.7 per cent for the year, a notable gain in the international environment.

Imports of capital goods, excluding transport equipment, were up 1.8 per cent for the quarter and 7.3 per cent for the year. This allayed suspicions that business investment might be flinching in the face of renewed global uncertainty.

The decline in import prices would have been 2.8 per cent had it not been for higher prices for oil and oil products.

ANZ's commodity price index has been recording falls in both world price and New Zealand dollars since the middle of last year.

"On the face of it the weakness in export and import prices should provide some comfort on the inflation front," ANZ economists said.

"But there is a risk that the current stronger domestic trading environment could provide scope for the bulk of these lower import costs to be used to rebuild margins, rather than be passed through into lower consumer prices."