Economy safe as prices soar

By BRIAN FALLOW

World prices for New Zealand's export commodities strengthened again last month, increasing the odds of a soft landing for the economy over the next 18 months.

ANZ's world commodity price index rose 2.5 per cent to a record level in the 18-year history of the index.

And because the New Zealand dollar was on average 4 per cent lower in May than in April, in local currency terms commodity prices climbed 6.4 per cent to be 15.3 per cent higher than a year ago.

ANZ economist John Bolsover said exporters would continue for some time to feel the impact of the kiwi dollar's strength over the past two years.

"But the performance of commodity markets, coupled with the New Zealand dollar's retracement since mid-February, gives some confidence that the worst fears for the export sector, and the economy as a whole, may be avoided."

World dairy prices rose 2.1 per cent and are almost 20 per cent up on this time last year and in line with their previous peak in mid-2001.

Lamb and beef prices have also soared, to record or near-record levels.

Beef prices jumped 11.1 per cent last month and have eclipsed a 10-year high recorded last November.

Bolsover said the surge in demand for beef was partly a seasonal increase for the northern summer barbecue season, but it also reflected a stronger United States economy which had lifted prices for pork and poultry as well.

Tight beef supplies from the US and Australia and a renewed ban on Canadian beef had also supported the US market, he said.

Lamb prices rose 2.2 per cent last month to be 12.4 per cent up on a year ago and at the highest level for at least the past 18 years.

Venison prices continue to recover from a sharp decline between July 2001 and September last year. They rose 10.2 per cent last month to be 39 per up on a year ago.

Aluminium prices on the other hand fell 6 per cent.

"Demand remains strong, particularly from the US, Japan and China," Bolsover said, "but markets have pulled back over concerns about the ability of Chinese policymakers to engineer a soft landing for their economy."