The Reserve Bank of Australia last night released its commodity price index for the month of July, which registered another fall in special drawing rights (SDR) terms (effectively a measure of commodity prices based on a broad range of currencies) on the back of falls in Australia’s second and third biggest export commodities: coal and gold:
Preliminary estimates for July indicate that the index fell by 1.5 per cent (on a monthly average basis) in SDR terms, after falling by 3.9 per cent in June (revised). The largest contributors to the decline in July were falls in the prices of coal and gold, which were partly offset by increases in the prices of iron ore and crude oil. In Australian dollar terms, the index rose by 0.6 per cent in July.
Over the past year, the index has fallen by 11.8 per cent in SDR terms. Much of this fall has been due to declines in the prices of coking coal, gold and thermal coal. The index has fallen by 1.3 per cent in Australian dollar terms over the past year.
While commodity prices fell for the fifth straight month in SDR terms, the falls have been offset by the ongoing depeciation of the Australian Dollar (AUD), which resulted in the index actually rising by 0.6% over the month in AUD terms – the third consecutive rise (see next chart):
In SDR terms, the index is now plumbing new lows in the great correction. Looking forward, continued depreciation of the AUD will be required to cushion the blow to government revenues and nominal GDP, as well as promoting growth in the non-mining economy, as the terms-of-trade unwinds.
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