2 Jun 2012

Purchasing power still relatively high: economist

8:12 am on 2 June 2012

The country's purchasing power against the rest of the world is continuing to fall because of declining commodity prices, but economists say it remains relatively high.

Official figures show the country's terms of trade fell by 2.3% in the first three months of the year, the third consecutive quarterly decline.

However, UBS senior economist Robin Clements says the overall decline is modest.

"We are only a bit over 4% off the peak, so even though there's been more dramatic declines in commodity prices, dairy in particular, the terms of trade are reflecting some decline in export prices but it's been partially offset at the same time with falls in import prices."

ANZ's Commodity Price Index shows commodity prices have fallen to a 21-month low, declining 4.2% in May.

Wool led the drop, followed by dairy products, offsetting price rises for apples, kiwifruit, timber and seafood.

Prices have fallen 18% from the peak hit in April last year and ANZ economist Steve Edwards says further declines are expected.

"Commodity prices can fall by up to 50% from their peak so there is potential for further weakness but it's hard to gauge how far it's going to go"