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ANZ Commodity Price Index - May 2001

Data Flash (New Zealand)
NZ: ANZ Commodity Price Index - May 2001

Key Points

The foreign currency price of New Zealand's commodity exports rose 2.0% mom in May, driven by a very sharp rise in sawn timber prices and a further increase in the price of dairy products.

Reflecting the 4% appreciation of the trade weighted NZD between April and May, the NZD price index fell 1.9% mom. However, the index was 26.8% higher than a year earlier and 57% above its cyclical low.

Comment

In recent times, the RBNZ has been at pains to point out that the continued strength seen in commodity prices means that one of the major channels through which a weaker world economy typically affects New Zealand does not to be operating. As a result, the global weakness is not generating the degree of downward pressures on inflation that one would normally observe. Together with the buffer provided by the stimulatory level of the exchange rate and a gradually strengthening domestic economy, robust commodity prices explain the RBNZ's reluctance to ease rates as aggressively as some central banks have done. Ahead of Friday night's important US data, and with recent partial GDP indicators pointing to some upside risk to our preliminary Q1 GDP estimate of 0.8% qoq, we continue to attach no more than a 25% chance of the RBNZ easing rates further at its next review on 4 July.

The sharp fall in the NZD over the past year or more combined with the long-term foreign exchange hedging practice of many large exporters means that a considerable portion of the benefits of commodity price strength is probably still to be felt. Thus even if would prices fall somewhat from current levels - as we expect - the prices actually received by producers may well continue to rise as receipts are converted at more favourable NZD levels.

Darren Gibbs, Senior Economist, New Zealand

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