Export prices lift NZ income

The export dollar stretches further than it did, after a 3.8 per cent rise in export prices in the June quarter outstripped a 1.7 per cent rise in import prices.

The terms of trade improved 2.1 per cent, the third successive quarterly rise after a string of six declines, to be just 3 per cent below the peak in March 2008, which was a 34-year high.

An increase in the terms of trade indicates the real purchasing power of exports has increased and represents a lift in national income.

It has risen by 21 per cent over the past eight years.

The latest quarter's increase was less than the 3 per cent the Reserve Bank had forecast or the 3.5 per cent around which market expectations were clustered.

The 3.8 per cent rise in export prices was on top of a 10.5 per cent increase in the March quarter and was in spite of a 2.2 per cent rise in the trade-weighted exchange rate.

It was led by a 6 per cent lift in dairy prices. Meat was up 4.5 per cent and forest products and oil up 4.8 per cent.

But since the end of the June quarter ANZ's commodity price index has fallen 2.2 per cent in world price terms and 4.3 per cent when adjusted for exchange rate movements.

The rise in oil prices also boosted the import price index, and New Zealand is a net oil importer by a margin of 2.5 to one.

Prices of imported foods and beverages on average rose 4.3 per cent, led by a 12 per cent jump in sugar prices.

Raw materials like calcium phosphate for the fertiliser industry and alumina for the Tiwai Point aluminium smelter also contributed to the rise in import prices overall.

While relative prices moved in New Zealand's favour, it was a different story for volumes.

Exports were almost flat, up just 0.3 per cent in volume terms, while imports rose 1 per cent.

Shipments of forest products and meat were up, 5.3 and 3.2 per cent respectively, but dairy exports eased 0.5 per cent, the third successive decline in seasonally adjusted terms.

Oil exports also fell, by 7.3 per cent.

On the inbound side, imports of cars rebounded 23 per cent, after a 12 per cent decline in the March quarter.

But imports of capital plant and machinery fell 6.4 per cent, reversing the gains of the two previous quarters - "not a good sign for business investment", BNZ economist Craig Ebert said.

Consumer goods imports were flat.

ASB economist Jane Turner said that underpinning much of the Reserve Bank's relatively optimistic growth forecasts in the June monetary policy statement was a terms of trade outlook lifting beyond 2008 levels and remaining elevated for around a year.

"However, today's data suggest the terms of trade may not even return to 2008 levels, and suggest strong downside risk to the Reserve Bank's growth forecasts made in June.

"This reinforces the view that it will keep the official cash rate unchanged for the rest of the year," Turner said.