The RBA has released its commodity price index for November, which registered another 2.9% decline in SDR (currency weighted) terms – the key determinant of the terms-of-trade – and a 3.9% fall in Australian dollar terms:
Preliminary estimates for November indicate that the index fell by 2.9 per cent (on a monthly average basis) in SDR terms, after falling by 0.6 per cent in October (revised). Declines in the prices of iron ore and gold were partly offset by higher rural prices. The base metals subindex fell in the month. In Australian dollar terms, the index fell by 3.9 per cent in November.
Over the past year, the index has fallen by 22.0 per cent in SDR terms, led by declines in the prices of bulk commodities. The index has fallen by 11.1 per cent in Australian dollar terms over the past year.
As stated above, falls in the prices of iron ore and gold were the main drivers of the drop in the commodity price index.
Over the November quarter, the index of commodity prices fell by 4.9% in SDR terms and by 4.4% in Australian dollar terms. Over the year, they were down by 22.0% (SDR terms) and 11.1% (Australian dollar terms) respectively.
The six month moving average trend in prices is presented below. As you can see, commodity prices have been falling for an extended period in SDR terms, with no end in sight:
There is a strong correlation between the terms-of-trade and the RBA’s commodity price index in SDR terms (see next chart).
The ongoing fall in the commodity price index suggests that the terms-of-trade will continue to fall, dealing further blows to national income.
Thus, the national income recession is set to continue.
