Dairy export prices lift NZ terms of trade

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New Zealand's terms of trade rose for the first time in seven quarters, led by higher export prices for dairy products while a strong kiwi dollar helped constrain import prices.

The terms of trade, a measure how much imports can be funded with a fixed amount of exports, rose 4.1 per cent in the first quarter from three months earlier, according to Statistics New Zealand. Growth was more than twice as strong as the 0.9 per cent rate forecast in a Reuters survey.

Export prices for goods gained 1.9 per cent while import prices fell 2.1 per cent. Exports volumes were up 0.9 per cent and import volumes up 2.1 per cent.

Dairy prices rose 6.8 per cent in the latest three months, broadly in step with prices at the GlobalDairyTrade auctions and the first quarterly increase since the second quarter of 2011. Prices are still 22 per cent lower than their June 2011 peak.

The trade data comes after Fonterra Cooperative Group raised its forecast payout to farmers to $7 per kilogram of milk solids for the 2014, saying that while prices may have peaked for now, they're likely to hold near current levels through 2013 in the face of global supply constraints.

The volume of exported dairy products rose 2.2 per cent following a 13 per cent decline in the fourth quarter of 2012.

"With the June quarter set to capture the dairy price surge plus ongoing weak world inflation, we expect the terms of trade to push back towards record highs by the end of 2013," said Nathan Penny, economist at Westpac Banking Corp.

Meat recorded the biggest volume increase at 5.3 per cent though prices fell 3.1 per cent, reflecting weaker prices for lamb. Forestry export prices rose 2.4 per cent, the first increase in five quarters.

The government statistician said there was a broad-based decline in import prices, influenced by a higher New Zealand dollar. The trade-weighted index reached a post-float high in April. It was recently at 76.06 from 76.05 immediately before the figures were released.

Mechanical machinery import prices fell 4 per cent, reflecting lower prices for computers. Petrol and petroleum product prices declined 2.5 per cent, led by crude oil, motor spirit and diesel. The volume of petrol and aviation fuel imported rose 38 per cent in the latest quarter.

The terms of trade for services, such as tourism, rose 3.3 per cent.