Slide in prices of imported consumer goods

International trade prices

• Export & import prices: Import prices fell by 1.0 per cent in the June quarter and were down 2.8 per cent on a year ago. Prices of exported goods rose by 1.4 per cent in the June quarter to be down 8.7 per cent on a year ago.
• Consumer import prices: The price index of imported consumer goods fell by 1.9 per cent in the June quarter – the biggest fall in four years.
• The terms of trade likely rose by around 2 per cent in the June quarter, lifting incomes.

What does it all mean?

• The terms of trade (ratio of export prices to import prices) has stopped falling. The prices of imported goods continued to fall in the June quarter with oil prices the exception. But at the same time export prices lifted – notably the prices of oil and iron ore. The bottom line is an improvement in the terms of trade by around two per cent. The lift in the terms of trade boosts incomes and provides support for the Aussie dollar near US75 cents.
• The on-going falls in import prices suggest that economy-wide inflation will remain low, with scope for the rate of inflation to fall even lower in the short term. Prices of imported consumer goods fell by 1.9 per cent in the June quarter, the second straight decline and the biggest fall in four years. Prices of food, clothing, household electrical goods, phones and toys all fell in the latest quarter. If retailers are permitted to only pass through some savings to consumers, they may be able to lift margins and revenue – but this is far from certain in these competitive times.

What do the figures show?

Export & import prices

• The Bureau of Statistics reported that import prices rose by 1.0 per cent in the June quarter and were down 2.8 per cent on a year ago.
• “The fall in the Import Price Index is driven by falls in the prices paid for general industrial machinery and equipment, not elsewhere specified, and machine parts, not elsewhere specified (-4.0 per cent); office machines and automatic data-processing machines (-3.7 per cent); articles of apparel and clothing accessories (-4.0 per cent); telecommunications and sound recording equipment and reproducing apparatus and equipment (-2.6 per cent) and electrical machinery, apparatus and appliances, not elsewhere specified, and electrical parts thereof (including non-electrical counterparts, not elsewhere specified, of electrical household-type equipment) (-2.6 per cent). Partially offsetting these falls are rises in the prices paid for petroleum, petroleum products and related materials (+17.6 per cent).”
• Just three of the ten broad import categories recorded price increases in the June quarter.
• Export prices fell by 4.7 per cent in the June quarter to be down 13.8 per cent on a year ago.
• “This rise is driven by rises in the prices received for metalliferous ores and metal scrap (+9.1 per cent); petroleum, petroleum products and related materials (+22.1 per cent); gold, non-monetary (excluding gold ores and concentrates) (+3.3 per cent) and textile fibres (other than wool tops and other combed wool) and their wastes (not manufactured into yarn or fabric) (+5.6 per cent). Partly offsetting these rises are falls in the prices received for gas, natural and manufactured (-18.9 per cent); cereals and cereal preparations (-6.6 per cent) and coal, coke and briquettes (-1.3 per cent).”
• Just three of the ten broad export categories recorded price rises in the June quarter
• The ratio of export prices to import prices (a proxy for the terms of trade) rose by around 2 per cent in the June quarter – the biggest increase in more than three years.

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?

• The fall in imported consumer good prices over the past quarter supports the case of a rate cut at next Tuesday’s Reserve Bank Board meeting. There is a clear absence of price pressures in the economy – in fact there is scope for the inflation rate to ease, rather than rise in the short term.
• Over the past four years the cost of imported cars (road vehicles) across the docks has lifted by 10.5 per cent. But over the same period the price index of motor vehicles in the consumer price index has fallen by 5.3 per cent. Clearly there is more to this than meets the eye but the example also plainly highlights the difficulty all retail businesses have experienced in passing on higher prices to consumers in recent times.