The surge in export income isn’t hard to explain, but accurately charting its impact is.
The monthly Commodity Price Index graph from the Reserve Bank, and accompany explanation shows the difficulty.
Yesterday the bank issued the August graph and explanatory note. The impact of the those higher iron ore and coal export prices keep on being revised upwards as more information becomes available.
"Preliminary estimates for August indicate that the Index rose by 1.0 per cent (on a monthly average basis) in SDR terms, following an increase of 3.6 per cent (revised) in July.
"The largest contributors to the rise in August were increases in the prices of coking coal and thermal coal (reflecting the inclusion of preliminary estimates), and wheat. The prices of gold, aluminium, copper and wool fell.
"In Australian dollar terms, the Index rose by 7.0 per cent in August following an increase of 3.3 per cent (revised) in July.
However, the explanation for July’s rise was " Preliminary estimates for July indicate that the Index rose by 3.0 per cent (on a monthly average basis) in SDR terms, following an increase of 3.1 per cent (revised) in June.
"The largest contributors to the rise in July were increases in the prices of coking coal, thermal coal, gold and beef (see below).
“The prices of wheat and nickel fell. In Australian dollar terms, the Index rose by 2.8 per cent in July following an increase of 2.4 per cent (revised) in June.
"The inclusion of ABS export price estimates in the Index for coking coal, thermal coal and iron ore has resulted in an upward revision to the level of the Index in April and May, and a downward revision to June.
“Preliminary estimates for these commodities have been incorporated into the Index for July.
"While the increase in iron ore contract prices is now incorporated in the Index, contract price increases for coking coal and thermal coal are still flowing through to export prices."
That flow through effect from the higher coal and iron ore prices is still having an effect, with upward revisions to the increase in SDR terms (Special Drawing Rights) and in Australian dollar terms.
With the depreciating Australian dollar now kicking as well, many Australian resource companies are going to get a welcome boost this quarter and next.
That 7% rise in August in Australian dollar terms was substantial and will amplify returns if sustained over the remainder of the year.
In fact, looking at the above story on our June quarter current account and balance of payments improvement, it’s likely we could see a sharp improvement in the trade account, and in the trade surplus this quarter and in the final three months of the year.
It’s likely that this will make a rare positive impact over the next two quarters of economic growth.
