Commodity price rebound continues

The RBA has released its commodity price index for May, which rebounded 1.8% in SDR (currency weighted) terms – the key determinant of the terms-of-trade – but slumped by 7.4% over the year:

Preliminary estimates for May indicate that the index increased by 1.8 per cent (on a monthly average basis) in SDR terms, after increasing by 2.4 per cent in April (revised). The rural, base metals and non-rural sub-indices all increased in the month. In Australian dollar terms, the index decreased by 1.7 per cent in May.

Over the past year, the index has decreased by 7.4 per cent in SDR terms, led by lower coal, iron ore, oil and alumina prices. The index has decreased by 2.5 per cent in Australian dollar terms.

In Australian dollar terms, commodity prices declined by 2.5% over the past year.

The next chart, which tracks commodity price changes on a six month moving average basis, shows the rebound more clearly:

Later today we will receive the terms-of-trade data for the March quarter, which will feed into tomorrow’s national accounts.

The RBA commodity price index reported a 2.3% decline in commodity prices over the March quarter, which given past correlations, suggests a similar fall in the terms-of-trade:

If accurate, this would also pull down national disposable income over the March quarter.

Leith van Onselen

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