New Zealand's terms of trade fell 2.3% in the September quarter as the cost of imports rose more than the cost of exports, Statistics New Zealand said.

The fall means that 2.3% less merchandise imports could be funded by a fixed quantity of merchandise exports than in the June 2008 quarter.

BNZ had forecast a 5% quarterly fall in the terms of trade, Westpac forecast a 2.2% fall, while ASB had forecast a 2% rise. The market consensus was for a 2.6% fall.

The import price index had its biggest quarterly rise since the September 1984 quarter. It rose 11.4% in the September quarter with the petroleum and petroleum products price index recording its largest rise (31%) since the December 1990 quarter in which it rose 66.3%.

"When petroleum and petroleum products are excluded from the total imports index, the movement in the September 2008 quarter is a rise of 7.4%," Government Statistician Geoff Bascand said.

The export price index rose 8.6% with the food and beverage index rising 8.4% and the dairy products index rising 7.4%.

Annually, terms of trade for the year ended the September quarter rose 4.4%, despite the Trade Weighted Index (TWI) showing the New Zealand dollar depreciated 11.3% in the September year. The TWI fell 5.4% in the September 2008 quarter.

At September 30, 2008, the TWI sat at 71. Westpac are forecasting it to fall to 55.8 by the end of the December quarter and further to 49.6 by the June 2009 quarter before recovering. BNZ is forecasting the TWI to fall to 52 in June 2009.

"Q3 is likely to be the final hurrah for New Zealand's terms of trade as deteriorating world outlook has weakened prospects for New Zealand commodity export prices. Dairy prices in particular have fallen considerably over Q4," ASB said in its weekly newsletter on Monday December 8.