Terms of trade continue to fall

The merchandise terms of trade fell 2.3 percent in the September 2008 quarter, due to import prices rising more than export prices, Statistics New Zealand said today. The latest fall followed a 0.4 percent fall in the June 2008 quarter. However, the terms of trade remain 4.4 percent higher than one year ago and over one-fifth higher than five years ago. The latest fall means 2.3 percent less merchandise imports could be funded by a fixed quantity of merchandise exports than in the June 2008 quarter.

According to the Reserve Bank Trade Weighted Index, the New Zealand dollar depreciated by 5.4 percent and this made a significant contribution to September 2008 quarter rises in the import and export price indexes.

The import price index rose 11.1 percent, while seasonally adjusted import volumes fell 5.0 percent in the September 2008 quarter. The rise in prices was the largest quarterly rise for merchandise imports since the September 1984 quarter. The price index was driven up by a 31.0 percent rise in the petroleum and petroleum products index, the largest increase since a 66.3 percent rise in the December 1990 quarter. When petroleum and petroleum products are excluded, the price index for merchandise imports rose 7.4 percent.

The fall in import volumes was driven by a fall in the capital goods index (down 18.2 percent). The capital goods index was also the main contributor to a rise in import volumes rise in the June 2008 quarter – an oil rig and floating platform valued at $477 million were imported and took the index to a new high.

The export price index rose 8.6 percent, while seasonally adjusted export volumes fell 2.3 percent in the September 2008 quarter. The export price has increased for five consecutive quarters, and is 29.2 percent higher than in the June 2007 quarter, when it last fell. An 8.4 percent rise in the food and beverages index, driven by meat (up 11.5 percent) and dairy products (up 7.4 percent), was the main contributor to the overall increase in prices. The fall in export volumes was mainly due to dairy products and to petroleum and petroleum products. The volume of dairy products has fallen for the last three quarters.