Commodity price plunge signals Q1 terms-of-trade slump

The RBA has released its commodity price index for March, which tanked 3.7% in SDR (currency weighted) terms – the key determinant of the terms-of-trade – and slumped by 10.2% over the year:

Preliminary estimates for March indicate that the index decreased by 3.7 per cent (on a monthly average basis) in SDR terms, after increasing by 1.0 per cent in February (revised). The base metals, rural and non-rural subindices all decreased in the month. In Australian dollar terms, the index increased by 3.5 per cent in March.

Over the past year, the index has decreased by 10.2 per cent in SDR terms, led by lower coal, LNG, oil and alumina prices. The index has increased by 0.7 per cent in Australian dollar terms.

However, the sharp depreciation of the currency increased commodity prices in Australian dollar terms.

The fall in commodity prices in SDR terms signals another fall in the terms-of-trade when the Q1 national accounts are released in early June:

And with falling terms-of-trade comes falling national disposable income.

Leith van Onselen

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