Export prices top, on paper

By BRIAN FALLOW

The buying power of New Zealand's exports continued to rise in the September quarter - officially at least.

Statistics New Zealand said export prices fell 0.6 per cent in the quarter while import prices fell 1.7 per cent, resulting in a 1.1 per cent improvement in the terms of trade (the amount of imports that can be funded by a fixed volume of exports).

The terms of trade have improved 6.1 per cent over the past year, helping to buffer New Zealand from the effects of a global economic slowdown.

The Reserve Bank and some private sector forecasters are expecting a sharp reversal in the terms of trade next year as export prices, which have already started to slip, tumble further.

Most of the 1.1 per cent improvement in the September quarter is a statistical illusion, however, because of differences in the way export prices and import prices are adjusted for exchange rate effects.

In periods like the September quarter, when the dollar appreciates, the less up-to-date exchange rates used by Customs, from whom Statistics NZ gets import data, have the effect of dragging down import prices more than export prices.

Westpac economist Nick Tuffley said that asymmetry would reverse over the December quarter, now that the exchange rate had given up those gains.

Meanwhile export volumes rose 0.4 per cent in the September quarter as increased exports of forest products and manufactured goods more than offset lower shipments of lamb and dairy products.

Import volumes fell 1.4 per cent, largely reversing a 2 per cent rise in the June quarter. The decline was mainly in imports of consumer goods and cars.