Terms of trade index falls in September

New Zealand's imports continue to outstrip its exports.

The country's Terms of Trade index, a measure of international purchasing power, fell in the September quarter, although by a smaller amount than expected, Statistics New Zealand said today.

The merchandise terms of trade index fell 0.6 per cent in the September quarter, following a 1.2 per cent fall the previous quarter. Merchandise export prices rose 1.9 per cent, while merchandise import prices were up 2.5 per cent.

Economists polled by Reuters had forecast a 1.2 per cent fall, with export prices rising 0.7 per cent and import prices rising 2.0 per cent.

Stats NZ said the biggest driver behind the rise in export prices was a 3 per cent rise in food and beverage prices which were in turn pushed up by a 4 per cent rise in prices for dairy products and a 2.6 per cent rise for meat.

The increase in merchandise import prices reflected higher world prices for petrol and petrol products, which were up 11.7 per cent in the September quarter on top of a 24 per cent rise in the June quarter.

On a seasonally adjusted basis, the merchandise export volumes index fell 2.8 per cent in the September quarter, its third consecutive quarterly fall. Falls for milk powder, milk and cream and cheese in the dairy products index were the biggest contributors to the fall. These drops were partly offset by a 3.6 per cent rise for meat.

The seasonally adjusted merchandise import volumes index was up 0.5 per cent, its fourth consecutive quarterly rise.

The merchandise trade data measures the difference between what New Zealand earns for its exports, and what it pays for its imports.

The worsening trade data has contributed to the blow out in the current account balance, which hit 8 per cent of gross domestic product (GDP) in the year to June.

ANZ National chief economist John McDermott said the negative export volumes looked bad for third-quarter GDP figures.

He said a soft GDP figure would reduce pressure on the Reserve Bank (RB) to raise interest rates in January. Last week the RB raised the official cash rate by 25 basis points to 7.25 per cent.

Economists had been forecasting the economy would grow 2.5 per cent in 2005, slowing to 2.1 per cent in 2006.

The New Zealand dollar was little moved by today's trade data, fetching US70.23c shortly after the announcement from US70.17c at 8.30am today.

- NZPA