First Impressions: NZ terms of trade up 1.5% in Q2 2017 - Westpac

The NZ terms of trade rose 1.5% in the June quarter, falling just short of a record high.

Key Quotes:

"Terms of trade: +1.5% (Prev: +3.9%, Westpac f/c: +3.0%, market f/c: +3.0%)

Export price index: +2.4% (Prev: +6.9%)

Import price index: +0.9% (Prev: +2.9%)"

The terms of trade – the ratio of export prices to import prices – rose 1.5% in the June quarter, a bit less than we and the market expected. In addition, the March quarter increase was marked down from 5.1% to 3.9%, due to a revision to the price/volume split for forestry exports. As a result, the terms of trade fell slightly short of the record high that we were anticipating.

Export prices rose by 2.4%, led by a 9% rise in meat prices and a 4% rise in dairy prices. Most export commodities performed well over the quarter, with the exception of a 3% drop in wool prices. Manufactured goods prices were down 2%, although that followed a 6% jump last quarter.

Import prices rose by 0.9%. Petroleum prices fell by 4%, but there were price gains across a range of manufactured goods. A slightly lower exchange rate over the quarter will have contributed to higher import prices.

The terms of trade release also provides information on export and import volumes, though this doesn't quite align with the trade figures in the national accounts. Export volumes rose 6.8% over the quarter, reversing much of the 8.4% cumulative decline over the previous three quarters. Dairy export volumes rebounded by 19%, reflecting both an improvement in milk production over the first half of this year and the delayed timing of some export shipments. Import volumes rose 2.3%, largely due to a lumpy quarter for petroleum imports (up 18.5%). There are no implications for our June quarter GDP forecast, as the movements in trade volumes are likely to be offset by changes in inventories."