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Overseas Trade Indexes - Q1/2000

Data Flash (New Zealand) Overseas Trade Indexes - Q1/2000

Key points * Export prices rose by 1.9% qoq while import prices rose by 4.8% qoq. * Compared with Q1/1999, export prices were 9.7% higher, while import prices were 11.2% higher. * The market had expected rises in export and import prices of 2.6% and 3.4% respectively. * The terms of trade fell by 2.7% qoq and 1.1% yoy. The terms of trade now stand at the lowest level experienced since Q3/1987. * Raw volume data suggests a 2.0% rise in GDP exports in Q1. Large increases were recorded in exports of wool and non-food manufactured goods. * Import volumes, on a GDP basis, fell by around 8% in the March quarter, but remained higher than in Q1/1999. The large fall in the March quarter follows very strong growth over recent quarters due to the importation of a frigate and large aircraft, and due to Y2k effects.

Comment * Although the rise in crude oil prices is an important factor underpinning growth in overall import prices, the latest data show rising prices across a broad range of products reflecting more generalised growth in world commodity prices and the depreciation of the exchange rate. * The OTI price indices, and the import price index in particular, are key inputs into the RBNZ's inflation forecasts. The increase in export and import prices was again much stronger than the assumption built into the RBNZ's inflation forecasts - the RBNZ had assumed no change in export and import prices during the quarter. * Adjusting the volume data to match GDP concepts suggests GDP growth of around 1% growth in Q1/2000. The release of manufacturing data later today will allow us to refine our estimate. * On the one hand, the RBNZ will see today's outcome - pointing to higher near-term inflation pressures - as supporting the case for further monetary policy tightening over the course of the next year. However, the Bank will also be conscious that the apparent slowdown in the economy over the past couple of months, if sustained, reduces the risk of second-round effects from high imported inflation. Those considerations suggest that the decision about a further tightening on 5 July remains finely balanced.

Darren Gibbs, Senior Economist, New Zealand, (64) 9 351-1376

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