Quick Bites | Commodity Prices Remain High

Today we look at commodity prices highlighted in the April 2023 Reserve Bank of Australia (RBA) Chart Pack.

Source: RBA April Chart Pack

The first chart (top left) shows the RBA Index of Commodity Prices. It is particularly interesting, partly because it covers a long period (36 years), but also because the RBA’s index weights different commodities according to their export values to Australia (thus quite different to many other global commodity indexes).

Commodity prices remain very high relative to the past, although they do appear to have peaked. In particular, Liquified Natural Gas (LNG) and coal prices have come off sharply after spiking last year.

Although off the peak, our Terms of Trade are at a multi-decade high (chart on the bottom right). The chart covers 80 years of data, with the first spike in the 1940s reflecting the economic consequences of the Second World War. The Terms of Trade compares the prices of our exports to the prices of our imports. Thus if, say, LNG, coal, and iron ore prices are rising at a time when imported manufactured goods like clothes, cars, and computers are falling, then our Terms of Trade will tend to rise. A high Terms of Trade index is very positive for Australia, and should in time be reflected in a stronger currency.

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