Export prices set new record

ANZ National chief economist Cameron Bagrie. Photo / Mark Mitchell

Export commodity prices continued to climb last month, taking the ANZ index to a record high in its 24-year history.

World prices for a trade-weighted basket of New Zealand commodities exports rose 3.5 per cent in October to be 31 per cent higher than a year ago. A rising exchange rate limited the increase in New Zealand dollar terms to 0.8 per cent, making 28 per cent for the year or just 2.7 per cent off its all-time high in May this year.

The rise was broad-based with nine of the 13 commodities in the ANZ index rising, offset by falls by beef, sawn timber and apples. World prices for wool jumped 29 per cent last month to a 21-year high. In New Zealand terms the prices are at a seven-year high.

"Over the past two months wool prices have rebounded, largely on the back of a return of Chinese buyers, with some restocking of supply chains occurring in anticipation of a pick-up in worldwide demand for carpets in mid-2011," ANZ chief economist Cameron Bagrie said.

China takes about 38 per cent of New Zealand wool exports. Skins rose 10 per cent last month and aluminium 8 per cent. Dairy, lamb and log prices rose between 3 and 4 per cent and seafood 2 per cent.

Bagrie said booming commodity prices were a critical support pillar for the economy. They helped the rural sector to reduce debt and repair balance sheets. They were also providing a huge income boost to the economy.

The Treasury said the weakness of the US dollar, in which most commodity prices are quoted, explained some of the price increases in world price terms.

"The anticipation of further quantitative easing in the United States is also likely to be a factor in the recent increases in some commodity prices."

Quantitative easing lowered interest rates, encouraging investors to seek higher yields in other investment classes. It was also likely to lead to higher inflation, encouraging investors to seek a hedge against that in commodities such as gold.