Australia's terms of trade has stopped falling

Image: Port Hedland Port Authority.

After a relentless slide, Australia’s terms of trade has stopped falling, according to data released by the Australian Bureau of Statistics yesterday.

The ABS reported that import prices fell 1% during the June quarter, taking the 12-month fall to 2.8%. On the other side of the ledger, prices for Australia’s exported goods rose 1.4%.

CommSec chief economist Craig James says that even though that still leaves export prices down 8.7%, it’s the “first lift in the terms of trade in 2 years”.

The key driver of the lift in export prices has been a notable increase in the price Australia receives for oil and iron ore, James said.

This improvement in export prices relative to import prices means that the “bottom line is an improvement in the terms of trade by around two per cent”, James said. He added that “the lift in the terms of trade boosts incomes and provides support for the Aussie dollar near US75 cents”.

But it has implications for the RBA as well.

James said that falling import prices suggests that “economy-wide inflation will remain low, with scope for the rate of inflation to fall even lower in the short term”.

That’s something that the RBA board will take into account when it meets next Tuesday to decide whether or not to cut the cash rate from 1.75%.

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