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Purchasing power soars as terms of trade hit 37-year high

Dairy's golden run lifted New Zealand's terms of trade to a 37-year high in the June quarter, and while Statistics New Zealand believes dairy prices have peaked, returns should remain high for years yet.

Dairy's golden run lifted New Zealand's terms of trade to a 37-year high in the June quarter, and while Statistics New Zealand believes dairy prices have peaked, returns should remain high for years yet.

The terms of trade, which represents our purchasing power with the rest of the world,  rose 2.3 percent to their highest level since March 1974.

That means 2.3 percent more imported goods could be funded by a fixed quantity of exported goods than in the March 2011 quarter. 

The latest rise was due to export prices rising (up 1.8 percent) and import prices falling (down 0.5 percent).

Strong increases in dairy and meat prices have been key contributors to the increasing terms of trade over the past year, government statistician Geoff Bascand said.

Dairy prices climbed 4.5 percent and meat prices also lifted strongly this quarter, up 2.9 percent largely due to higher lamb prices (which are up 30 percent from a year ago). Wool prices also surged, rising 12 percent, and up a whopping 58 percent over the year. High cotton prices, as a result of poor global harvest, have been the driver behind stronger wool prices over the past year.

Much of the export‐led recovery over the past year has largely been in prices and incomes rather than increased production. However, ongoing caution in the rural sector has seen much of the increased revenue saved, rather spent, muting the stimulatory impact of higher export prices on the rest of New Zealand.

Export volumes lifted 0.5 percent over the quarter, largely driven by a surge in non‐food manufactured exports.  But import prices dropped 2.4 percent, the first fall since June 2009.

Import prices fell 0.5 percent following the previous quarter’s 5.4 percent increase. Petrol prices rose strongly, reflecting increases in global oil prices, while machinery and equipment drove the most significant downward contributions. Excluding petrol prices, import prices fell 1.4 percent.