Terms of trade expectations

The ABS today released their International Trade Price Indexes for September.  These figures are not used to produce the official terms of trade measure, but they can be used to generate a very close alternative estimate.

Today’s numbers show import prices flat over the Sept quarter, with export prices up 4%.  This is likely to bring the official September quarter terms of trade up around 4% to 127.5 – an all time record high, noted on the chart below.  From all accounts, this is in line with market expectations.

Here is the ABS summary

Over the Sept quarter the big price moves were from coal and gas.  Coal prices were up 9.3% (coal makes up 19% of the export price index) and gas prices an unbelievable 24.5%.  Metalliferous ores, which currently comprises 31% of the export price index, were flat.

I have written at length on the sensitivities of the terms of trade to price fluctuations in just to commodities – coal and iron ore.  This is important to keep in mind.  As H&H has noted, iron ore prices in October have fallen substantially and coking coal has also fallen significantly in this quarter so the the next round of contract negations will probably see the terms of trade fall.

The trends in relative commodity prices over the next year will be very important for Australian policy makers.

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  1. I believe the TREND in the long term for commodity exporting nations, has long been negative. Oil exporting nations might be an exception, but even this is heavily dependent on when a nation got into oil exporting. Mexico has not been Saudi Arabia.
    It is nuts to be constantly penalising “value added” urban economic activity which is where ALL the real wealth increase in the world economy has come
    from for 60 years now.