Trade deficit hits record high

Photoshopped image credit: Pixy

A newspaper has reported that the trade deficit for August has hit a record high, with increasing fuel prices being the main reason for the sharp increase. quote.

Higher fuel costs helped propel New Zealand imports to near record levels in August, contributing to the largest ever monthly goods trade deficit.

The country had a $1.5 billion trade deficit in August, bigger than the $1 billion average August monthly deficit during the past five years and the highest ever recorded, Stats NZ said. Economists surveyed by Bloomberg had expected a deficit of $925 million. The New Zealand dollar dropped as low as 66.33 US cents after the data was released, from 66.43 cents immediately prior. It was recently trading at 66.39 cents. end quote.

This sort of thing does not generally affect the average punter’s view of the world, but if an expected deficit of $925 million suddenly becomes $1.5 billion in one month, then there is real cause for alarm.

I know I bang on and on about fuel prices, but there is a reason for that. Fuel prices affect everything. Once fuel prices start increasing, which they well and truly have, then the price of everything increases. quote.

Monthly imports rose 14 per cent to $5.5 billion, the third-highest total on record, outpacing a 9.9 per cent lift in exports to $4.1 billion, the statistics agency said.

“This month’s rise in imports to near record levels occurs at the time of year when exports are typically at a low point,” international statistics manager Tehseen Islam said. “The high values for total monthly imports in the last four months helped push the annual trade deficit to a nine-year high.” end quote.

Now, to be fair, imports are rising because of higher population and correspondingly greater demand. But with this government’s attacks on agriculture and its blindsiding of the oil and gas industry, our balance of payments may have just started a serious downward slide. Early days yet, I know, but the signs are worrying for a small nation that has to export significant amounts of goods to survive. quote.

The leading contributor to the monthly rise in imports was petroleum and products, up 50 per cent, or $186 million, to $563 million. The increase was led by crude oil, up $98 million, and diesel, up $73 million.

Stats NZ noted imports of crude oil and other petroleum products tend to fluctuate from month to month. The quantity of crude oil imported in August this year fell 13 per cent from August last year, but prices rose by about 60 per cent. The latest unit price for crude oil remains 31 per cent lower than the most-recent series peak in May 2012, it said. end quote.

Which means that there is still plenty of room for oil prices to continue to rise. Combine that with a falling dollar, as we have now, and fuel is set to become very expensive indeed.

Of course, the increase in local fuel prices is exacerbated by government policies of applying petrol levies, and soon ACC costs will add to motorists’ woes. It may be a miserable plot to get us all onto bikes, but these are worrying signs for the future of our economy.

I had another conversation last night with a left voter, who maintains that the fall in business confidence is entirely due to business people hating Labour governments. It is a very convenient mantra. But, at the same time, they admitted that they thought that New Zealand was becoming a very expensive place to live. Once data like this starts to come to the fore, confidence is going to decline rapidly. “Nine years of neglect” did see us with a robust, well-performing economy. As night follows day, once the socialists get into power, it is all downhill from there.