Consumer bonanza

Import & export prices

• Prices of export goods rose by a record 7.8 per cent in the September quarter, courtesy of higher coal and iron ore prices. Export prices are 27.7 per cent higher than a year ago
• Prices of imported goods rose by 0.7 per cent in the September quarter, but driven largely by higher steel, iron and chemical prices. Import prices are still 1.5 per cent lower than a year ago.
• The data on import and export prices suggest that the broader terms of trade may have risen by around 7 per cent in the September quarter.
• The index of imported electrical appliances fell by 3.6 per cent in the quarter to stand at 59.6 – the lowest reading in records going back almost 20 years.

What does it all mean?

• It’s great news for consumers. The import prices for an array of items have fallen to the lowest levels in records going back more than two decades. The index of imported electrical goods is holding at the lowest level in records going back almost 20 years, while the index of telecommunication and sound recording equipment has fallen to the lows not seen in 27 years. And given the depressed retail sales environment, retailers will continue to pass on these savings in coming months.
• And there is added saving to come in coming quarters. Import prices tend to respond to the movements in the Aussie dollar with a lag effect. And the recent lift in the Aussie has not been fully reflected in already low import price data. In essence there are further cost saving to come and which will in turn at least partially be passed on to consumers.
• The costs saving for retailers could not come at a better time, given that activity remains sluggish. The cheaper prices should help to elevate margin pressure will still allowing retailers to discount.
• The latest trade data certainly is good news for Australia. Australia received almost 8 per cent more for its exports in the September quarter but paid just under one per cent more for imported goods. In essence the data quantifies the terms of trade boom that the Reserve Bank has been commenting on in recent times. The additional money flowing into Australian coffers will boost incomes and spur economic activity in the midterm.

• In simple terms, the ratio of export to import prices lifted almost 7 per cent in the September quarter. And while the actual terms of trade doesn’t line up with this measure precisely, it probably rose by a similar margin in the quarter.

What do the figures show?

• Import prices rose by 0.7 per cent in the September quarter, despite the strength of the Australian dollar. The rise was underpinned by higher prices for steel, iron and chemicals. Offsetting these rises were falls in prices for oil related products, and telecommunication equipment. Despite the quarterly increase, import prices are still 1.5 per cent lower than a year ago.
• Three of the ten broad import categories recorded price declines in the September quarter.
• The index of imported consumer goods rose by 0.1 per cent in the quarter with higher prices for food and clothing offsetting falls in prices of cars and electrical goods. In annual terms import prices were down 3 per cent on a year ago.
• Prices for household electrical items fell by 3.6 per cent in the quarter and 11.7 per cent over the year.
• The index of imported capital goods rose by 1.1 per cent in the quarter to be 6.1 per cent lower than a year ago.
• The index of imported intermediate goods rose by 1 per cent due to higher food and beverage prices. Intermediate goods prices are 1.7 per cent higher than a year ago.
• Export prices rose by 7.8 per cent in the September quarter, underpinned by higher contract prices for coal and iron ore. Export prices are now 27.7 per cent higher than a year ago. Four of the ten broad export categories recorded price falls in the September quarter.
• Prices of non-rural exports rose by 9.5 per cent in the quarter, with coal up 17.4 per cent and metal ores and minerals rising by 14.4 per cent. Rural export prices lifted 2.3 per cent in the quarter driven by higher meat prices.

What is the importance of the economic data?

• The Australian Bureau of Statistics (ABS) provides quarterly estimates of export and import prices. The figures assist is gauging inflationary pressures in the economy.

What are the implications for interest rates and investors?

• At present all the indications suggest the additional income from the terms of trade boom is being used to pay down debt or boost savings. However as the economic recovery gains traction over the coming year it is likely that the extra money will get spent which could lead to higher prices.
• The Reserve Bank has highlighted that rates will rise over the coming year and the inflation data released next will play an important part in deciding if rate rise at the November board meeting.
• Prices of imported goods are 1.5 per cent down on a year ago. And the recent strength of the Australian dollar should ensure that retailers will be able to keep discounting while also improving margins in the lead up to Christmas.