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December, 2018 4:35 PM



Fastest growth in import prices in 4 yrs

Fastest growth in import prices in 4 yrs

Import prices rose by 3.2 per cent in the June quarter and were up by 6.0 per cent on a year ago...

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26.07.2018 04:17 PM

Fastest growth in import prices in four years
Export & import prices

Export & import prices: Import prices rose by 3.2 per cent in the June quarter and were up by 6.0 per cent on a year ago – the fastest annual growth rate in four years. Export prices rose by 1.9 per cent in the quarter and were up by 6.6 per cent over the year.

Terms of trade: Based on today’s data we expect that the ratio of export prices to import prices (terms of trade) fell by around 1.0-1.5 per cent in the June quarter after rising by 3.3 per cent in the March quarter. 

What does it all mean?

Australian incomes, as measured by the terms of trade (ratio of export prices to import prices), eased in the June quarter after solid growth in the previous quarter. We estimate that incomes fell by around 1.0-1.5 per cent after a 3.3 per cent lift in the March quarter. Overall though, the terms of trade is still holding at much higher levels than in the period before the mining boom started in 2008.

In terms of implications for inflation, import prices are certainly worth watching – especially across the business sector. The quarterly lift in import prices in the June quarter was the biggest in four years. And annual growth of import prices was also the fastest in four years. The key question is whether Australian businesses are confident enough to pass on the higher import cost to consumer and business products.

While the lift in import prices was dominated by higher oil prices, eight of the ten price groupings reported higher prices in the quarter. The price of imported consumption goods also posted the strongest quarterly and annual growth in two years.

What do the figures show?
Export & import prices

The Bureau of Statistics (ABS) reported that import prices rose by 3.2 per cent in the June quarter after rising by 2.0 per cent in the March quarter. Import prices increased by 6.0 per cent over the year – the fastest growth rate in four years. Overall, import prices were driven by higher crude oil prices.

The ABS said: “The rise was driven by higher prices paid for Petroleum, petroleum products and related materials (+13.7 per cent), reflecting tight worldwide supply due to global production restrictions and capacity constraints.

General industrial machinery rose 3.3 per cent, reflecting rises in metal prices.

Electrical machinery, apparatus and appliances rose 1.7 per cent, driven by rises in prices of primary cells and batteries.

These rises were partly offset by falls in Metalliferous ores and metal scrap (-5.6 per cent). 

Through the year to the June quarter 2018, the Import Price Index rose 6.0 per cent, driven by Petroleum, petroleum products and related materials (+38.2 per cent) and
Inorganic chemicals (+40.8 per cent).”

Eight of the ten broad import categories recorded price increases in the June quarter.

Export prices rose by 1.9 per cent in the June quarter after a 4.9 per cent rise in the March quarter. Export prices were up by 6.6 per cent over the year.

The ABS said: “Prices received for many of Australia's mineral fuel commodities rose in the June quarter 2018. Gas, natural and manufactured, rose 10.8 per cent, in response to strong demand for LNG in northern Asia. Export contract prices for LNG are also influenced by the international crude oil price with a two to four month lag.

Petroleum, petroleum products and related materials rose 8.5 per cent, reflecting tight worldwide supply due to global production restrictions and capacity constraints.

Cereals and cereal preparations rose 6.9 per cent, reflecting the impact of dry weather globally in many wheatgrowing regions.

Meat and meat preparations rose 3.8 per cent, influenced by strong demand in Asia and the United States.

Coal, coke and briquettes rose 0.9 per cent, reflecting demand from China.

Offsetting the rises were falls in Metalliferous ores and metal scrap (-1.7 per cent), driven by falls in iron ore as demand from China slowed.

Through the year to the June quarter 2018, the Export Price Index rose 6.6 per cent, driven by Coal, coke and briquettes (+8.5 per cent), Gas, natural and manufactured (+18.8 per cent), and Petroleum, petroleum products and related materials (+34.2 per cent).”

Nine of the ten broad export categories recorded price increases in the June quarter.

The ratio of export prices to import prices (a proxy for the terms of trade) rose by around 1.0-1.5 per cent in the June quarter after rising by 3.3 per cent in the March quarter.

What is the importance of the economic data?

The Australian Bureau of Statistics (ABS) provides quarterly estimates of export and import prices. The figures assist is gauging inflationary pressures in the economy.

What are the implications for interest rates and investors?

CommSec doesn’t expect a change in cash rates until 2019 at the earliest.

Cost pressures exist in the construction sector with iron and steel prices up 11.8 per cent on a year ago with metal prices generally higher. Also across imports, prices of plastics were up by 20.8 per cent, with prices of chemicals also generally higher together with prices for paper products, cork/wood, fertilizers, machinery and photographic equipment. The good news is that food and clothing items continue to get cheaper together with computers, mobile phones, furniture and leather products like handbags.

Published by Craig James, Chief Economist, CommSec
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