Last week, the Australian Bureau of Statistics (ABS) released its export/import price index, which signaled an enormous 11.0% increase in Australia’s terms-of-trade over the March quarter 2021 and a 15.8% increase through the year:
This surge in the export/import price index was driven by a 18.2% quarterly rise in metalliferous ores and metal scrap prices, caused by strong iron ore demand from China and constrained global supply owing to the tragic dam failure at a Vale mine in Brazil in early 2019.
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Yesterday evening, the Reserve Bank of Australia (RBA) released its Commodity Price Index for April, which rose another 3.1% over the month in SDR terms, after increasing by 2.8% in March:
Over the April quarter, the commodity price index rose by 7.5%, whereas over the year it surged by 34.7%.
Thus, the RBA’s commodity price index is further confirmation that Australia’s terms-of-trade likely experienced a huge lift over the March quarter, which is so far carrying into the June quarter.
The importance of this cannot be understated. The ToT measures the average price level of exports to the average price level of imports. Thus, when the ToT rises a given quantity of exports can pay for a larger quantity of imports, effectively granting the nation a pay rise.
The ToT, therefore, is a key determinant of national income, as well as a key driver of government finances via company tax receipts.
For now, the commodity gods are shining on the ‘Lucky Country’.