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Hot Topic NBR Focus: GMO
Hot Topic NBR Focus: GMO
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Terms of trade at record high - but there's a catch


The terms of trade continue to rise, up 2.3% for the September quarter and hitting another 37-year high.

Rob Hosking
Thu, 01 Sep 2011

The terms of trade continue to rise, up 2.3% for the September quarter and hitting another 37-year high.

Prices earned for exports rose 1.8%, while prices paid for imports dropped 0.5%.

Income from dairying was the main contributor, rising 4.5%, along with meat (up 2.9% and wool (up 12.2%).

By volume, exports rose 0.5% in the quarter and are at the highest level since the series began in June 1990.

On the import side of the ledger, the news is less rosy. Yes, the prices paid for imports fell, but this was more due to a drop in the volume of imports, rather than a drop in prices.

The drop in prices paid – 0.5% - was less than the drop in volumes, which fell 2.4%, the first drop since June 2009.

The main cause of the drop in both the volume of imports and the prices paid was a fall in capital goods, including plant and machinery, imports.

This is an area which has shown considerable strength over the past year, as firms have taken advantage of the combination of a high New Zealand dollar making imports of capital stock such as plant and machinery more affordable, along with the ability, given the poor economic outlook in some northern hemisphere countries, to negotiate lower prices.

The overall drop for the quarter, although large, is not the concern: Imports of capital goods fell just under 11%, but this is largely because one of the airlines bought a new aircraft the previous quarter.

But imports of the more workaday plant and machinery also fell, by 1.2%.

Offsetting this somewhat is imports of intermediate goods, up 7.8%, suggesting firms are undertaking a burst of stock-building.

Again, discounting the volatile aircraft parts segment (up 76%) imports of processed fuels and lubricants rose 45%.

Rob Hosking
Thu, 01 Sep 2011
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Terms of trade at record high - but there's a catch
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