The federal government's revenue windfall from high commodity prices appears set to get bigger as rebounding Chinese growth and surging global demand for lithium have helped drive export prices higher.
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Australian Bureau of Statistics figures show the prices the country is getting for its exports increased by 1.6 per cent in the March quarter to be 6.9 per cent higher than a year earlier, underpinned by a 23.9 per cent jump in the cost of fertilisers and minerals, including lithium - a crucial component in the manufacture of high-performance batteries for devices including electric vehicles.
The rise in export prices coincided with a 4.2 per cent decline in the cost of imports because of a 15.2 per cent drop in international gas prices and a 16.7 per cent decline in meat prices as drought-hit US farmers increased the slaughter of cattle.
Commonwealth Bank economist Stephen Wu said although the result only included goods, it meant the terms of trade - the difference between export and import prices - was likely to have increased more than 4 per cent in the March quarter.
"It is a strong result. The terms of trade is quite important because it adds to nominal GDP [gross domestic product]," he said.
Mr Wu said the outcome was likely to add to royalties and boost the flow of revenue into government coffers.
The most recent monthly financial statement shows that in February the deficit was $20.5 billion smaller than had been expected because of a $13 billion boost to revenue from strong company profits and high employment.
Treasurer Jim Chalmers has flagged that a significant amount of any revenue windfall will be directed to paying down debt but the government may be tempted to devote some to help meet increased costs, particularly helping provide living cost relief to households and cover some of the increased expenditure in disability, defence, aged care and health.
Mr Wu said the weakness in import prices "line[d] up with" ABS figures released on Wednesday showing that inflation for tradeable goods and services has slowed sharply, underlining analysis that the source of inflation pressures has shifted substantially from offshore to domestic.
The data showed that underlying inflation eased in the March quarter broadly in line with Reserve Bank of Australia expectations, causing markets to estimate almost no chance of further rate hikes.
But Commonwealth Bank economists disagree. CBA's head of Australian economics Gareth Aird has erred on the side of predicting a rate hike on May but admitted it was "another line ball call".
Mr Aird said current unexpectedly strong population growth is considered inflationary by the RBA and is likely to offset any comfort the central bank draws from evidence of easing price pressures.
The CBA economist predicts that a hike next week to 3.85 per cent will be as far as the Reserve Bank goes in tightening monetary policy and expects rates will begin to come down late this year, forecasting two rate cuts by the end of year and two more in the first half of 2024.
