Data Flash (New Zealand)
The foreign currency price of New Zealand's commodity exports fell 1.8% mom in June, the first fall in world prices in
nine months. The result was partly driven by sharply weaker prices for aluminium and wood pulp.
Reflecting the 1.1% depreciation of the trade weighted NZ dollar between May and June, the NZD price index remained
unchanged in June. The index was 23.9% higher than a year earlier and 54% above its cyclical low.
Comment
Considering the weak global environment, prices for New Zealand exports have performed surprisingly well over the past
year. The June result may be the first indication that the upward trend is coming to an end and we expect some
moderation in aggregate world prices over coming months. However, the renewed weakening of the NZ dollar is providing an
offset to a potential fall in global prices in the near term. Furthermore, with the gradual expiry of currency hedges
above current spot rates, primary sector incomes will get a continued boost. Of concern to the RBNZ will be the
corresponding upward drift in domestic food prices. Price increases of around 10-20% have recently been announced for
dairy products in order to keep domestic prices in line with export returns.
Recent commodity price trends, combined with the strong export value data for the June quarter, suggest that growth of
3.5% qoq or more will be recorded for June quarter export volumes. That is consistent with our expectation of a rebound
in GDP growth of 1% qoq or more in Q2. The combination of rising food prices and evidence of strengthening export volume
growth is another factor that suggests that it is unlikely that the RBNZ will ease again.
Ulf Schoefisch, Chief Economist, New Zealand