New Zealand's sky-high terms of trade have been a key pillar
of support for the stronger New Zealand economy over the last
year but economists warn their influence is set to wane.
The terms of trade rose for the fifth consecutive quarter in
the three months ending March to their highest level since
The terms of trade are now just 1.7% shy of the record high
set in the June 1973 quarter.
However, the record high was set to live another day as the
terms of trade were expected to fall from June, ASB economist
Nathan Penny said.
Export prices showed small rises across most categories.
Dairy led the way, increasing 2.3% in the quarter.
Forestry prices were up 1.6% and meat prices 2.1%.
The only material fall came in aluminium prices, which were
down 2.9% in the quarter.
''This will be the last rise in export prices for the next
few quarters, as dairy prices come off their highs. Dairy
auction prices are down around 23% since February and trade
data will begin to reflect these falls from the June
The combination of the high New Zealand dollar and low global
inflation continued to keep import prices low, Mr Penny said.
Fonterra last week announced an opening forecast farm-gate
milk price for the 2014-15 season of $7 per kg of milk
solids, matching the opening forecast provided 12 months ago
at the start of the current season.
The global dairy auction prices will be released this
The co-operative also reduced its 2013-14 price to $8.40kg
ms, down 25c.
Higher production was expected to offset the fall in the
Mr Penny said import prices fell 1% in the March quarter,
with the trade-weighted average price for the dollar 1.8%
higher in March.
Looking at volumes of exports, meat exports, up 6.6%, led a
1.6% rise in total exports for the quarter.
Forestry exports were also up in the quarter but dairy
exports were down 4.3% in March, following the 23.7% rise in
Reflecting strong activity to start the year, and the strong
dollar, imports were strong in March.
Volumes were now 12% higher and values 8% higher than in the
previous corresponding quarter.
''The Reserve Bank will take some comfort in the lower import
prices, and a strong dollar, but a June official cash rate
hike is pretty much locked and loaded. From there, we expect
the Reserve Bank to pause before hiking again in December.''
Westpac senior economist Anne Boniface remained optimistic
the terms of trade would remain elevated relative to
Growth in New Zealand's trade with China, and other emerging
markets, had been instrumental in driving increased demand
for New Zealand's key export commodities.
The trend was likely to be sustained, she said.