Overseas Trade Indexes (June Quarter)
Data Flash (New Zealand) Overseas Trade Indexes (June Quarter)
Key points Export prices rose by 3.8% qoq, while import prices rose by 2.6% qoq. The terms of trade rose by 1.2% in the June quarter, but were 1.0% below the level of Q2/99.
Compared with Q2/1999, export prices were 12.2% higher, while import prices have risen by 13.3%. Key drivers behind the increases continues to be broadly-based strength in commodity prices, as well as NZD weakness. Export volumes in Q2 were 11.1% higher than last year, which suggests that June quarter GDP will record no change in exports. ?Import volumes were 7.3% up on last year, which implies a rise of imports, as measured in the GDP accounts, of around 1.5%.
Comment Given the trade-weighted NZD depreciation of 1.5% and the renewed increase in world oil prices towards the end of the June quarter, the measured import price increase of 2.6% appears rather modest - particularly considering the overall increase in producer input prices of 1.2% in Q2. In previous quarters, PPI increases of that magnitude corresponded to import cost increases of around 4-5%.
We estimate that the average price paid for Dubai crude oil over the June quarter was around US$22/barrel, which was more than 10% below average spot price levels. The average September quarter spot price is has so far been close to US$27/barrel. Taking also into account the sharp rise in refining costs, that suggests a significant world oil price contribution to September import prices. With the TWI having depreciated by around 6%, that puts our forecast for September quarter import price inflation close to 8%.
Considering latest trends in export commodity prices, a similar figure is expected for the export price index. While that would imply stable terms of trade, the costs and benefits of high external prices may not be offsetting each other as neatly. Exporters appears to be currency hedged for longer periods, which means that the benefit of higher incomes may not fully be felt until next year, while higher import costs are flowing through to the domestic economy much sooner.
Today's data and latest exchange rate trends have confirmed the significant inflation risk facing the domestic economy. Our latest forecast puts the peak in CPI inflation at 3.5% in early 2001.
Ulf Schoefisch, Chief Economist, New Zealand, (64) 9 351-1376
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