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NZ Overseas Trade Indexes - Q4 2000


Data Flash (New Zealand) NZ Overseas Trade Indexes - Q4 2000

Key points

Export prices rose by 9.2% qoq in Q4 to be 27.1% higher than a year earlier. Around half of that increase can be attributed to the weakening in the NZD - Statistics NZ estimates are the trade-weighted index fell 4.7% qoq - with the remainder reflecting stronger world prices for New Zealand's export commodities. Import prices rose by 8.0% qoq in Q4 to be 22% higher than a year earlier. The weaker exchange rate was again a significant factor underpinning the extreme result. However, higher prices for a range of commodities - especially oil - also made an upward contribution. The petroleum and petroleum products index rose 15.1% qoq.

With export prices again outpacing import prices, the terms of trade increased 1.1% qoq to be 4.3% higher than a year earlier. The level of the terms of trade index is now at the highest level since 1994.

Exports volumes rose 1.8%qoq (seasonally adjusted) to be 4.9% higher than a year earlier. Both meat and dairy volumes recorded a strong rise during the quarter, up 8.6% and 5.5% respectively. Non-food manufacturers rose 1.8%qoq. Import volumes fell 3.5% qoq (seasonally adjusted), largely reflecting the impact of lower imports of large aircraft and ships. Excluding those factors, Statistics New Zealand suggest that import volumes were broadly flat.

Reflecting the composition of growth in the economy, the strongest import growth was due to rural-related intermediate and capital goods and general plant and nmachinery.

The OTI data imply a significant contribution from net export volumes to GDP growth during Q4. However, weak retail sales and construction data will provide a partial offset. On balance, the latest data imply a modest amount of downside risk to our preliminary Q4 GDP estimate of +0.7% qoq. We will finalise our estimate following the release of tomorrow's manufacturing survey.

Comment

Today's price outcomes, which once again were stronger than the market expected - and we think much higher than the RBNZ expected - continue to point to significant pipeline inflation pressure. We expect to see some of this pressure reflected in a high core CPI outcome for Q1 (due 18 April), although headline inflation will benefit from weaker petrol prices and the treatment of a change in state housing rentals.

Renewed NZD weakness - which we now expect to persist for at least the next 3 months - suggests that the RBNZ cannot count on an appreciating exchange rate to moderate headline inflation. Indeed, given our exchange rate projection, it is not difficult to see CPI inflation remaining close to 3% over at least the next 18 months.

At the margin, today's release provides a further reason for the RBNZ to leave rates on hold this coming Wednesday. In the same vein, Friday night's US employment data continued the run of better than expected US data while last night's Colmar Brunton survey shows domestic consumer confidence increasing to +38%, suggesting that the WestpacTrust Quarterly survey - due in a couple of weeks - could print at a four year high. In our view, in common with the European Central Bank - the RBNZ has time to watch how the data unfolds without fine-tuning interest rates, continuing the practice adopted since May last year. We think that both international and domestic data will be quite telling over the next two months.

Darren Gibbs, Senior Economist, New Zealand,


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