Commodity price index signals further terms-of-trade lift

The RBA has released its commodity price index for July, which increased by 3.1% in SDR (currency weighted) terms – the key determinant of the terms-of-trade – and by 2.2% in Australian dollar terms:

Preliminary estimates for July indicate that the index increased by 3.1 per cent (on a monthly average basis) in SDR terms, after increasing by 2.9 per cent in June (revised). The non-rural subindex increased in the month, while the rural subindex decreased and the base metals subindex was little changed. In Australian dollar terms, the index increased by 2.2 per cent in July.

Over the past year, the index has increased by 16.1 per cent in SDR terms, led by higher iron ore, gold and copper ore prices. The index has increased by 21.0 per cent in Australian dollar terms.

Over the July quarter, the index of commodity prices rose by 6.6% in SDR terms and by 8.2% in Australian dollar terms. Over the year, they rose by 16.1% (SDR terms) and by 21.0% (Australian dollar terms) respectively.

The six month moving average trend in prices is presented below. As you can see, commodity prices are growing strongly:

As noted above, the SDR commodity price is a key determinant of the terms-of-trade (ToT), and suggests a further solid lift in the Q2 ToT and national income when the quarterly national accounts are released in early September.

Indeed, yesterday’s import/export price index, released by the ABS, suggested the ToT is facing a circa 2.8% rise in the June quarter:

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