(Updates throughout)
WELLINGTON, June 1 (Reuters) - New Zealand's terms of trade reached its highest level in 40 years in the first quarter of 2017 as a recovery in the dairy sector helped to strengthen the country's purchasing power abroad, the national statistics bureau said on Thursday.
The country's terms of trade jumped 5.1 percent to the highest level since June 1973, Statistics New Zealand said, but was below the growth in the last quarter of 2016 when it rose 5.7 percent, its strongest rate in more than three years.
Michael Gordon, acting chief economist at Westpac, said the return of dairy prices to average levels and a general trend of decline in import prices had pushed the terms of trade to new highs. Dairy is the country's largest goods export earner, accounting for around 7 percent of gross domestic product.
"Over the last year, we've had a strong rebound in dairy prices which is our major export product so that's contributed to the strong growth in the export price index," he said.
"The other factor is that import prices have generally been on a trend decline for several years now so while we did see an increase this quarter, it was largely around the rebound in oil prices we've seen globally."
Export prices jumped 8 percent in the first quarter, buoyed by an 18 percent rise in dairy prices, which had come under pressure last year.
Import prices rose by a more modest 2.7 percent in the quarter, due to higher crude oil prices, the statistics office said. Import prices have fallen by about a quarter since the end of 2008, it noted.
The New Zealand dollar NZD=D4 was last at $0.7082, showing little reaction to the outcome which economists said was largely within expectations.