ANZ Commodity Price Index - January 2002

Data Flash (New Zealand)

The average foreign currency price of New Zealand's commodity exports rose by 0.2% mom in January, following a cumulative 8.7% decline over the preceding three months. The average price was 3.4% below last year's level.

Several commodity groups that had recorded significant falls in Q4/01 experienced a significant price rebound: beef +7.0% mom, wool + 5.7% mom, timber +5.7% mom. However, that was mainly offset by the large dairy component, which fell by a further 5.2% mom and is now 22% below the mid-2001 peak.

Reflecting the appreciation of the NZD during January, the NZD price index fell by 1.9% mom. This index is now at the same level as a year ago.

Comment

The RBNZ had built a significant fall in world prices of New Zealand's export commodities (down 10-15% by late 2002) into their November forecasts and commented at the last cash rate review on 23 January that prices had fallen rather earlier than expected. The January data suggest that the rapid decline seen in most markets in Q4 may have come to an end. While further weakness in world prices is likely over coming months, we expect a more modest downward trend to emerge. Such a scenario would be consistent with a lagged response of commodity markets to a gradual return of the world economy to stronger growth. Weaker world prices, in conjunction with the expected firming of the NZD over the course of this year, is likely to lead to a 8-10% decline in the official export price index during 2002. With import prices unlikely to match that decline, some of last year's significant terms of trade gains are forecast to be reversed.

Ulf Schoefisch, Chief Economist, New Zealand

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