Export dollar goes further

The export dollar stretches further than it used to. The terms of trade - the ratio of export to import prices or the plasma TVs you can buy for a container of milkpowder - rose 0.8 per cent in the December quarter, Statistics New Zealand reported yesterday.

The terms of trade rose 4.8 per cent in the past year and 11.7 per cent in the past two years, representing a significant boost in national income and buoyancy in the economy. Export and import prices both fell, reflecting the stronger dollar. Export prices fell 1.2 per cent and import prices 1.9 per cent.

The dollar rose 3.5 per cent on a trade-weighted basis in the quarter.

The strong dollar is helping to keep inflation within the Reserve Bank's 1 to 3 per cent target band, despite inflation of more than 4 per cent in the non-tradeables or domestic sectors of the economy. Export volumes rose 8.5 per cent in the December quarter, largely reversing a 9.3 per cent fall in the September quarter. Volumes are up 5.5 per cent on a year ago.

But despite a rebound in dairy exports, they have not returned to earlier levels.

Imports of non-transport capital plant and machinery were up 1.4 per cent in the quarter and 23 per cent for the year. Investment increased sharply in the past two years, in absolute terms and as a share of GDP, to historically high levels. This augurs well for the relief of capacity pressures and for productivity.