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ANZ Commodity Price Index - January 2000

Data Flash (New Zealand)

ANZ Commodity Price Index - January 2000

Key Points

The average foreign currency price of New Zealand's commodity exports rose by 1.7% in January, lifting the year-on-year increase to 9.9%.

The NZD price index rose by 1.0% in January, with a significant contribution from the weak NZD leading to an annual increase of 15.9%.

The rise in the commodity price index has become increasingly broad based over recent months, with prices for dairy goods and wool finally having turned up.

Commentary

The continued upward trend in the price index of New Zealand specific commodities is consistent with the gradual strengthening in the broader world commodity indexes on the back of a rapidly improving international economic environment. However, the NZD has not yet responded to this trend because there has been little sign of an equally rapid improvement in merchandise export figures. That inconsistency has become somewhat puzzling.

According to Statistics New Zealand, export values increased by around 10% during 1999. Including our estimate for the December quarter, export volumes rose by around 5% in 1999. The corresponding estimate of a 5% increase in the official export price index compares with a 12% increase in the ANZ commodity price data over the same period. Even when taking into account that only around 75% of New Zealand's merchandise exports are commodities and assuming significantly smaller price movements for the remainder of goods, a significant gap remains between the two price series.

The most likely explanation for the divergence is a timing factor, with the ANZ index measuring spot prices, while the official data reflect prices actually received by exporters. Those prices will have been set some time in the past. That suggests that we should expect to see a significant acceleration in the value of export receipts during the first half of this year, causing a turnaround in the adverse trade balance trend that developed in 1999. That will support the gradual improvement of the current account deficit from its expected peak of 8.1% late last year and should cause an improvement in sentiment with respect to the NZD.

Ulf Schoefisch, Chief Economist, New Zealand

This, along with an extensive range of other publications, is available on our web site http://research.gm.db.com

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