ANZ Commodity Price Index - February 2002

Data Flash (New Zealand)

The average foreign currency price of New Zealand's commodity exports rose by 0.8% mom in February. The average price was 4.7% below last year's level.

Average dairy product prices fell by 0.8% mom, to be 21% lower than last year. The `Meat, Skins and Wool' index rose by 2.1%mom, while forest product price rose by 1.3% mom.

Reflecting the depreciation of the NZD during February, the NZD price index rose by 1.7% mom, following a cumulative fall of 9.8% over the preceding four months.

Comment

The historical correlation between the commodity price index and the broader official export price measure suggests that a fall of around 5% qoq will be recorded for average export prices in Q1. That compares to our estimate of a 3.5% qoq decline in import prices over the same period, with the NZD appreciation of around 3% having a significant influence on both figures. A fall of 1.5% in the terms of trade in Q1 would follow an estimated similar decline in Q4 and imply that New Zealand's terms of trade (TOT) are currently around 2% below the level a year ago. That compares to a 5% decline forecast by the RBNZ last November. The Bank also projected another 6% decline in the TOT over the coming year. However, the RBNZ's terms of trade forecasts now appear too pessimistic, considering evidence that the downward cycle in agricultural commodity prices may be close to a bottom. The combination of a higher level in early 2002 and less of a decline going forward suggests that the TOT may be 5% higher in early 2003 than forecast by the RBNZ. In terms of national income, that corresponds to around 1% of GDP growth, providing another reason why the RBNZ should be expected to start withdrawing monetary stimulus with a 25 bps rate hike in May.

Ulf Schoefisch, Chief Economist, New Zealand

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