Import prices rise more than exports

Wednesday 11th March 2009

Prices for New Zealand imports rose by more than export prices, reflecting a weakening New Zealand dollar.

Import prices rose 3.4% in the three months ended December 31, from the third quarter, according to Statistics New Zealand. Export prices unexpectedly rose 2.5%, resulting in a 0.9% decline in the nation's terms of trade. That's well below the 2% drop in a Reuters survey.

The New Zealand dollar has tumbled 23% against the US dollar in the past six months, driving up the cost of imports such as machinery and computers. At the same time, a weak currency has swelled the value of exports such as dairy products, meat and timber. The currency may extend its decline with Reserve Bank Governor Alan Bollard expected to cut the official cash rate by 50 basis points to 3% tomorrow.

"The smaller-than-anticipated deterioration in the terms of trade means that this channel of influence from the rest of the world is holding up better than expected, so far," said Robin Clements, economist at UBS New Zealand.

"In the absence of a sharp collapse, the fall in the exchange rate more than compensates, meaning that the real exchange rate relative to the terms of trade is now a pro-growth factor looking ahead," he said.

Food and beverage export prices rose 6.5% in the fourth quarter, led by a 5.8% gain in milk products and a 4.9% rise in meat. Prices for forest products rose 11.2%.

Petroleum products contributed the biggest decline to export prices, falling 32%.

Mechanical machinery import prices jumped 18% in the latest quarter, on computers and machinery parts, while crude oil import prices dropped 29%, reflecting declining world prices for crude oil.

Export volumes declined 1.8%, led by crude oil and logs while import volumes fell 4.8% on vehicles, machinery and consumer goods.

By Jonathan Underhill

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