Tougher trade brought into focus

The cost of imported consumer goods rose 5.9 per cent in the final three months of 2008.

New Zealand's terms of trade worsened in the last quarter as export and import volumes droppedThe terms of trade worsened in the December quarter as import prices grew faster than export prices.

The terms of trade measures the varying quantity of imports which could be funded by a fixed quantity of exports - how many plasma TVs a container-load of milkpowder is worth, you might say.

It fell 0.9 per cent, the same as in the September quarter. At its peak in March last year, it was the most favourable it had been since the early 1970s, but it has declined for the past three quarters.

Export volumes meanwhile are falling, but import volumes are falling even faster.

Export prices rose 2.5 per cent in the quarter, despite weaker world prices for many export commodities, but only because the exchange rate fell 11.8 per cent on a trade-weighted basis.

The currency's depreciation also drove import prices higher. Overall they rose 3.4 per cent.

Mechanical machinery jumped 18.3 per cent, its largest increase since 1971.

Overall prices for imported capital goods rose 13.8 per cent, but for consumer goods the rise was 5.9 per cent and cars 4.1 per cent, offset by a 29 per cent fall in oil prices.

UBS economist Robin Clements said the fall in oil prices would not be repeated in the March quarter so some deterioration in the terms of trade is to be expected.

"However, in the absence of a sharp collapse, the fall in the exchange rate more than compensates."

Export volumes have fallen for four quarters in a row and are now 11 per cent off their peak. In the December quarter they fell 1.8 per cent.

The biggest falls were in oil exports and forest products. Shipments of dairy products were up.

Import volumes dropped 4.8 per cent to be 9.8 per cent lower than in June last year. A 27 per cent drop in car imports was the biggest contributor.

The implications of yesterday's data for the Reserve Bank's monetary policy were limited, Goldman Sachs JB Were economist Shamubeel Eaqub said.

The data did not capture the impact of the rapid deterioration in global growth and trade, evident in collapsing exports out of many east Asian countries, he said.