Australia's export prices surged a record 13.8 percent last quarter thanks to past contract increases for coal, though a more recent tumble in commodity prices augurs ill for revenues ahead. Government figures on Friday showed coal prices were up a huge 70 percent in the third quarter, courtesy of strong demand from China, while overall export prices rose by almost 33 percent in the year to September.
The third-quarter jump overwhelmed a spike of 5 percent in import prices, the biggest increase in eight years as rising fuel costs were inflated by a falling Australian dollar. As a result, Australia's terms of trade - what it gets for exports compared to what it pays for imports - looked to have climbed by around 8 percent in the quarter.
That was a boon to profits, employment, dividends and tax receipts at a time when business and consumer confidence was being sorely tested by the global financial crisis.
"It should lend some support to growth last quarter, which is welcome given the turmoil abroad," said Su-Lin Ong, a senior economist at RBC Capital Markets.
That would be a comfort to Prime Minister Kevin Rudd as he holds an emergency conference with business leaders on Friday, seeking ideas on how to cushion the economy. Earlier this week, Rudd announced a stimulus package worth A$10.4 billion ($7.2 billion), which could add around 0.9 percentage points to economic growth in the 2008/09 fiscal year. The Reserve Bank of Australia (RBA) has played its part by chopping the cash rate a full percentage point this month, the biggest cut in 16 years, taking it to 6.0 percent. The market is pricing in another easing of at least 50 basis points in November and rates near 4.5 percent within a year.
Still, RBC's Ong cautioned that the sharp rise in import prices last quarter would add to inflationary pressures and squeeze business profit margins. Figures for consumer prices due out next week are expected to show core inflation ran at a 17-year high around 4.5 percent in the third quarter, well above the RBA's target of 2 to 3 percent.
Some of that would be due to petrol prices combined with a slump in the local dollar. Import costs for fuel rose 12 percent in the third quarter, to be up 64 percent for the year. Yet, since many of Australia's resource exports like coal and iron ore are priced in US dollars, they bring in more money when the local currency falls.