Import, export prices signals terms-of-trade lift

The Australian Bureau of Statistics (ABS) has released export and import prices for the September quarter, which portends a lift in Australia’s terms-of-trade when the national accounts are released in early December.

According to the ABS, export prices rose by 1.3% over the September quarter and were up by 14.7% over the year, whereas import prices rose by 0.4% over the quarter and were up by 1.2% over the year:

According to the ABS, the rise in export prices was driven mostly by Gas, natural and manufactured (+7.0%) and Gold, non-monetary (excluding gold ores and concentrates) (+15.6%), partly offset by Coal, coke and briquettes (–5.9%) and Petroleum, petroleum products and related materials (–9.9%).

Dividing export prices by import prices gives a useful estimate for Australia’s terms-of-trade. As shown below, the terms-of-trade is facing a circa 1.0% rise in the September quarter, which should add to both national income and nominal GDP (forecast in green):

However, this is contradicted by the RBA’s Index of Commodity Prices for September, which suggested that the terms-of-trade would fall:

This evening we will receive the RBA’s commodity price index for October, which will add more colour on the direction of commodity prices and the terms-of-trade.

Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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