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NZ Overseas Merchandise Trade

Data Flash (New Zealand)
NZ Overseas Merchandise Trade (Imports, January) & Producer Price Indexes (Q4 2000)

Key Points - Trade Balance

Statistics NZ reported a provisional trade surplus of $101m for the month of January compared with a surplus of $2m in January 2000. The average deficit for January over the past 10 years is $22m. The annual deficit declined to $1,422m compared with a deficit of $3,319m a year earlier.

The market expectation had been for a surplus of around $140m. The marginally weaker than expected result can probably be traced to higher than expected import values. Following a weak December, imports of consumption goods rebounded very strongly. Export values were exactly in line with our expectations.

The value of exports in January was 31.4% higher than a year earlier, while exports for the three months to January were 31.1% higher than a year earlier. With export prices estimated to be running around 20% higher than a year earlier, today's outcome confirms that export volumes continue to record very significant growth. A breakdown of the export data will be made available with the final trade release on 14 March.

The estimated level of imports in January was 25.8% higher than a year earlier, while imports for the three months to January were 4.8% higher than a year earlier. Excluding `lumpy' imports of capital transport and military equipment, `core' imports in January were 28.4% higher than a year earlier, while core imports for the 3 months to January were 19.8% higher than a year earlier. We estimate that import prices are running a little under 20% higher than a year earlier, implying that core import volumes are broadly flat.

Key Points - Producer Price Indexes For the second quarter in a row, producer price inflation printed well in excess of market expectations.

Producer input prices rose 3.6% qoq in Q4 (market expectation: +1.5%) and were 11.0% higher than a year earlier. Input prices increased for every published industry, with significant contributions made by higher prices for crude oil, air transport and construction inputs.

Producer output prices rose 2.2% qoq in Q4 (market expectation: +2.0%) and were 6.8% higher than a year earlier. Most industries recorded higher prices, with the wholesale trade index contributing most to the rise (reflecting higher prices for diesel and aviation fuel). Higher prices for a variety of export commodities also made a strong upward contribution.

Commentary The latest trade outcome was a little worse than we had expected, with the surprise due entirely to stronger than expected imports. This surprise, in turn, stemmed largely from much stronger than expected imports of consumption goods in January (we had allowed for a bounce-back from a weak December, but the magnitude of the rebound proved more significant). While this may indicate the beginnings of a stronger period of retail activity, we are hesitant to draw too strong a conclusion from one month of data.

Nonetheless, the underlying improvement in the trade balance remains intact. This month's balance was close to $100m better than a year earlier - $190m better excluding the impact of higher fuel costs. We continue to expect a dramatic reduction the current account deficit, driven largely by the trade balance. From a deficit of 6.4% of GDP in Q3 2000, we expect the deficit to fall below 4% by Q2 2001 with a more significant fall a distinct possibility. Producer price data continues to confirm significant upstream price pressure in the NZ economy, though this pressure will have been moderated somewhat by lower crude oil prices and the stronger NZD in recent months. The correlation between PPIs and the CPI suggests some upside risk to the CPI inflation over the period ahead. Our current estimate for Q1 is 0.2% qoq. This estimate is influenced heavily by downward contributions from lower petrol prices and the treatment of a change in state house rentals. We believe that measures of core inflation point to another 1% qoq increase.

As set out in our latest Economic Forecasts, which will be published this coming Friday, we think that the plethora of strong activity and inflation data released over recent months more-or-less rules out an easing by the RBNZ on 14 March. Rather, we expect the Bank to continue to watch the international activity data closely, with one eye also on domestic activity and inflation data. While we would not rule out an easing move in May, our central view is that rates most likely remain at current levels over the remainder of this year.

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

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