4 Mar 2014

Terms of trade peak picked

7:38 am on 4 March 2014

The country's rising terms of trade should continue into the next quarter but it is likely the figures will peak in the near future, an economist says.

New Zealand's purchasing power at 40-year high.

New Zealand's purchasing power at 40-year high. Photo: PHOTO NZ

The terms of trade is at a 40-year high after rising 2.3 percent in the three months ended December.

Higher dairy export prices and volumes are behind the rise, which means more imports can be bought for every dollar of exports sold.

Bank of New Zealand economist Doug Steel said although strong at the moment, international dairy prices were expected to dip.

"At the moment, the terms of trade are just going from strength to strength," he said.

There would be more commodity price information this week in the form of the dairy auction and also the ANZ commodity price index, which was expected to show another lift.

"So these things are suggesting that export prices generally are still rising. That means the terms of trade is probably going to lift in the first quarter," Mr Steel said.

"That said, I think we're not too far away from a peak in the terms of trade, and we do expect international dairy prices to be easing off a little bit over the coming 12 to 24 months."

The ongoing dairy boom, which was a big part of the terms of trade story, was not the only primary sector performing well; forestry was another standout, as were lamb and beef.

ANZ Bank economist Mark Smith said there were encouraging signs of a broadening number of sectors achieving higher prices for their exports outside of dairy.