#Terms of trade fall on dairy, petrol

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A combination of lower dairy export prices and higher petrol import costs in the June quarter have dragged New Zealand’s terms of trade to their lowest level since March 2010.

According to the latest figures from Statistics New Zealand, the country’s ability to fund imports by the same quantity of exports fell 2.6 per cent in the three months to June 30 – the fourth fall in a row. Headline export prices fell 1 per cent in the period, with a dairy making the biggest contribution to the decline.
Dairy prices fell 2.6 per cent in the period, led by a 2.7 per cent drop in milk powder, a 4.1 per cent drop in butter, and a 1.1 per cent fall in cheese.
Dairy prices have been under pressure for much of this year, as additional supply from Europe and the US came online and New Zealand experienced bumper pasturage.
That was followed by a 2.3 per cent slide in meat prices, with a near 8 per cent drop in the price of lamp the biggest contributor to the fall.
On the export side of the equation, import prices rose 1.7 per cent in the June quarter.
Petrol costs made the most significant contribution to the increase, with prices rising 8.4 per cent in the three months thanks high crude oil charges.
Statistics NZ said a slide in the New Zealand dollar added to the terms of trade weakness, with the Reserve Bank’s Trade Weighted Index – a measure of the kiwi against a trade-ranked basket of currencies – falling 1.7 per cent in the second quarter.
A weaker kiwi tends to drop the price of locally produced exports while also making imports more expensive.
The services terms of trade also fell 2.6 per cent in the quarter, with services export prices up 0.9 per cent and services import prices up 3.7 per cent.
Source: Stuff

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