ECONOMY Export rise buffets Aussie economy July 21, 2008 AAP
Export and import prices are not headline-grabbers, but they can still tell us a lot about the forces buffeting the Australian economy.
The price of exported goods rose by 13.5 per cent in the June quarter, the Australian Bureau of Statistics (ABS) said.
It was the biggest quarterly rise in the history of the 24-year history of the export price index.
And it was no flash in the pan.
The rise over the past five years - 9.5 per cent per year on average - is the biggest since the minerals boom of the late 1970s and early 1980s.
It is shaping up as one of the main barriers to an interest rate cut from the Reserve Bank of Australia (RBA).
The relative shift in the ratio of export prices to import prices has dramatically boosted the total purchasing power of Australian governments, businesses and households.
The RBA is worried that the resulting boost to incomes will reverse the recent slowdown in economic activity.
"Whereas for a net commodity importer a rise in commodity prices acts like a tax paid to foreigners, Australian entities are net receivers of such payments."
"That impact is expansionary," RBA governor Glenn Stevens said in a speech this week.
Export prices are only part of this process.
While they have been heading skyward, import prices remain subdued.
The import price index rose just 1.4 per cent in the June quarter, but is still down by 8.1 per cent over the past five years.
So Australia's current problems with inflation, running at over four per cent compared with the RBA's target of two to three per cent, cannot be sheeted home to "imported inflation".
The steadiness in import prices is in part the result of steep declines in some categories of imports.
The price of imported computer equipment has fallen by 62 per cent past half-decade.
The price of telecommunications equipment has declined by 51 per cent over the same interval and household electrical goods are down by 39 per cent in price.
This might come as a surprise to those buying such items, but the ABS measures more than the price of, say, "a stereo" or "a PC".
If, for example, a personal computer has twice the processing power, memory and features of last year's model it represents twice the amount of computer to the statistician.
If its price is still the same as last year's model, then the price of a given quantity of PC is said to have fallen by half.
But even allowing for that statistical effect, import prices have been subdued.
Even the low-tech textiles, clothing, footwear category has posted a price fall of 24 per cent over the past five years, while the price of food and beverages has risen only marginally.
This is despite a pick-up in global inflation pressures over the past few years.
Crude oil and other raw materials inputs have been heading higher, and both wage costs and consumer prices have clearly accelerated in major exporters like China.
But, with the RBA's high interest rates helping to push the exchange rate higher, Australia has been largely insulated from this effect.
If not for a 29 per cent rise in the value of the Australian dollar (gauged against the RBA's trade-weighted index), the fall in import prices over the past five years would have turned out closer to a 19 per cent increase.
So as well as defusing the income effect of higher export prices, the RBA's tight monetary policy has meant imported inflation has been snuffed out, leaving the central bank to focus on home-grown inflationary pressures.
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