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NZ terms of trade rises to 44-year high

NZN 1/06/2017 Jonathan Underhill

New Zealand's terms of trade rose to the highest level in about 44 years in the first quarter as export prices rose more than three times faster than imports, led by dairy and forest products.

The terms of trade rose 5.1 per cent in the first quarter, Statistics New Zealand said, beating the 3.9 per cent increase forecast by economists in a Reuters survey.

Export prices rose 9 per cent in the first three months of the year and import prices gained 2.7 per cent.

Terms of trade is a measure of the purchasing power of New Zealand's exports abroad. The latest rise means 5.1 per cent more goods imports could be funded by a fixed quantity of goods exports than in the December 2016 quarter.

The value of exports rose 3.4 per cent to $11.8 billion, seasonally adjusted, in the first quarter, while the value of imports rose 6.2 per cent to $13.2b but export volumes fell 4.2 per cent while import volumes rose 1.2 per cent.

"The terms of trade sit just 0.3 per cent below the record high set back in June 1973. And with export prices still very healthy over recent months, we expect it is only a matter time before a new record is set," economists at ASB Bank said in a note.

Dairy led the gain in export prices, jumping 18 per cent in the first quarter as milk powder rose 20 per cent, butter gained 23 per cent, and cheese rose 8.8 per cent.

Dairy values rose 1.2 per cent in the March 2017 quarter to $3b.

Forest product export prices rose 11 per cent in the March quarter, led by a 15 per cent gain from wood, to reach their highest level since the series began, and topping the previous record set in September 2000 by 1.5 per cent, Stats NZ said.

Petroleum and petroleum product prices, which aren't seasonally adjusted, led the gain in overall import prices.

The terms of trade with China rose 5.3 per cent, and for Australia it rose 0.6 per cent, and for the US recorded a 0.5 per cent gain.

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