New Zealand's terms of trade rose to the highest level in about 44 years in the first quarter as export prices rose more than three times faster than imports, led by dairy and forest products.
The terms of trade rose 5.1 per cent in the first quarter, Statistics New Zealand said, beating the 3.9 per cent increase forecast by economists in a Reuters survey. Export prices rose 9 per cent in the first three months of the year and import prices gained 2.7 per cent. Terms of trade is a measure of the purchasing power of New Zealand's exports abroad. The latest rise means 5.1 per cent more goods imports could be funded by a fixed quantity of goods exports than in the December 2016 quarter.
The terms of trade provides a more detailed reading of the flow of goods and services across the border than the monthly merchandise trade series because it shows how much changes in the value of exports and imports is driven by price and how much by volume. The value of exports rose 3.4 per cent to $11.8 billion, seasonally adjusted, in the first quarter, while the value of imports rose 6.2 per cent to $13.2b but export volumes fell 4.2 per cent while import volumes rose 1.2 per cent.
"The terms of trade sit just 0.3 per cent below the record high set back in June 1973. And with export prices still very healthy over recent months, we expect it is only a matter time before a new record is set," economists at ASB Bank said in a note.
Dairy led the gain in export prices, jumping 18 per cent in the first quarter as milk powder rose 20 per cent, butter gained 23 per cent, and cheese rose 8.8 per cent. Dairy prices are 34 per cent higher than the recent low of September 2016, but are still 21 per cent lower than the March 2014 high, Stats NZ said. Dairy values rose 1.2 per cent in the March 2017 quarter to $3b, while the seasonally adjusted dairy export volumes fell 11 per cent, to the lowest level since the September 2013 quarter.