U.S. Import Prices Decreased 0.4% vs 0.1% Increase Expected In June

by Ike Obudulu Posted on July 13th, 2018

Washington D.C., USA: U.S Import Price Index which measures change in the price of imported goods and services purchased domestically decreased 0.4 percent in June, the U.S. Bureau of Labor Statistics reported today, following a 0.9 percent advance in May. Lower prices for non fuel and fuel imports contributed to the June decline. Prices for U.S. exports rose 0.3 percent in June, after rising 0.6 percent the previous month.

The forecast from a median survey of economists had expected U.S. Import Prices increase of 0.1% in the past month.

U.S. import prices fell the most in more than two years in June as prices for petroleum products fell and a strong dollar weighed on the costs of other goods, pointing to benign import inflation pressures.

All Imports

The price index for U.S. imports fell 0.4 percent in June, after increasing 0.9 percent in May and 0.5 percent in April. The June decline was the largest monthly drop since the index decreased 0.5 percent in February 2016. Despite the downturn in June, overall import prices advanced 4.3 percent between June 2017 and June 2018.

Fuel Imports

Import fuel prices decreased 0.7 percent in June, after a 6.1-percent advance in May and a 3.9-percent rise in April. Falling prices for both petroleum and natural gas contributed to the overall drop in June fuel prices. Prices for petroleum fell 0.8 percent in June following advances of 7.4 percent in May and 4.2 percent in April. Natural gas prices fell 6.0 percent in June, after a 24.7-percent drop the previous month. The price index for natural gas has not recorded a monthly increase since a 13.4-percent advance in January. Fuel prices rose 33.8 percent over the past 12 months, driven by a 37.8-percent increase in petroleum prices over the same period. In contrast, natural gas prices declined 27.8 percent over the past year, the largest 12-month drop since the index fell 34.8 percent for June 2016.

All Imports Excluding Fuel

Prices for nonfuel imports decreased 0.3 percent in June following a 0.2percent increase in May. The June decline was led by lower prices for foods, feeds, and beverages; consumer goods; capital goods; and automotive vehicles which more than offset higher prices for nonfuel industrial supplies and materials. The price index for nonfuel imports advanced 1.5 percent for the year ended in June, driven by higher prices for nonfuel industrial supplies and materials; capital goods; and consumer goods.

Imports by Locality of Origin

Import prices from China recorded no change in June, after a 0.1-percent uptick the previous month. Prices for imports from China increased 0.5 percent over the past year, the largest 12-month advance for the index since a 0.6-percent rise between May 2013 and May 2014. In contrast, the price index for imports from Japan edged down 0.1 percent in June, the first monthly decline since the index fell 0.3 percent in October 2017. Import prices from the European Union, Canada, and Mexico all decreased in June, led in part by lower fuel prices. Prices for imports from the European Union and Canada decreased 0.3 percent, and the price index for imports from Mexico fell 0.5 percent.

Nonfuel Industrial Supplies and Materials

Nonfuel industrial supplies and materials prices increased 0.3 percent in June following a 0.8-percent advance in May. Higher prices for metals and paper drove the June advance.

Finished Goods

Prices for each of the major finished goods areas decreased in June. Consumer goods prices fell 0.3 percent in June, the first monthly decline since the index decreased 0.1 percent in December 2017 and the largest 1-month drop since the index fell 0.3 percent in November 2016. The price indexes for import capital goods and automotive vehicles each declined 0.1 percent in June

Foods, Feeds, and Beverages

Foods, feeds, and beverages prices fell 2.6 percent in June, the largest monthly decline for the index since a 2.8-percent drop in February 2012. Falling prices for vegetables, fruit, and fish and shellfish all contributed to the decrease in June.

Transportation Services

Import air passenger fares increased 7.3 percent in June, after decreasing 2.5 percent the previous month. The June rise was driven by a 7.9-percent advance in European fares and a 12.6-percent increase in Asian fares. The index for import air passenger fares advanced 4.8 percent over the past year. Prices for import air freight fell 1.0 percent in June and increased 17.1 percent over the past 12 months.

U.S. Import and U.S. Export Price indexes

The U.S. Import and U.S. Export Price Indexes measure the change over time in the prices of goods or services purchased from abroad by U.S. residents (imports) or sold to foreign buyers by U.S. residents (exports).

The Import/Export Price Indexes, along with the Consumer Price Index and Producer Price Index, form the basis of three major Bureau of Labor Statistics (BLS) programs measuring the change in the prices of goods and services in the U.S. economy. Each of the three has been designated as a Principal Federal Economic Indicator.

An index is a tool that simplifies the measurement of movements in a numerical series. Movements are measured with respect to the base period when the index is set at 100. Currently, most Import/Export Price Indexes have an index base of 2000=100 and price changes are measured in relation to that figure.

While movements between two dates can be expressed as index point changes, it is more useful to express the movements as percent changes.

How the Import/Export Price Indexes are used

The Import/Export Price Indexes are primarily used to deflate foreign trade statistics produced by the U.S. Government. Gross Domestic Product (GDP) calculated by the Bureau of Economic Analysis (BEA), is an example of a statistic that is deflated using the Import and Export Price Indexes. The Import/Export Price Indexes are also a valuable input into the processes of measuring inflation, formulating fiscal and monetary policy, forecasting future prices, conducting elasticity studies, measuring U.S. industrial competitiveness, analyzing exchange rates, negotiating trade contracts, and analyzing import prices by locality of origin.

Deflating trade statistics: Major government trade statistics deflated using the Import/Export Price Indexes—the monthly U.S. trade statistics, the quarterly Balance of Payments Account (BPA) numbers, and the foreign sector of the quarterly National Income and Product Accounts (NIPA). The Import/Export Price Indexes can also be used to deflate any import or export values into real terms.

Measuring inflation: Movement in import prices can often be an indicator of future inflation since some inputs to domestic production, as well as consumption, are imported.

Formulating fiscal and monetary policy: The Federal Reserve Board frequently uses the Import/Export Price Indexes as a resource when deciding the nation’s monetary policy. Import/Export Price Index data may also assist policymakers in determining the impact of trade legislation on fiscal policy.

Forecasting future prices: Anticipating future price trends is important to business leaders and those doing research on international prices. A major input into any model used to forecast price trends is past prices. Although past price behavior is not a perfect predictor of future trends, historical patterns and relationships in the Import/Export Price Indexes can contribute knowledge about the future price levels.

Conducting elasticity studies: Price and income elasticity estimates are often used to examine how much of trade volume changes are attributable to price effects and how much to income effects. The Import/Export Price Indexes can be used to construct price elasticity estimates.

Measuring U.S. industrial competitiveness: The Import/Export Price Indexes can be used as inputs when measuring U.S industrial competitiveness. These measures include terms of trade indexes, export price comparison ratios, and import and export foreign currency indexes.

Analyzing the effects of exchange rates: The Import/Export Price Indexes can be used to construct pass-through rates to measure how much of an exchange rate change is passed through to an import or export price.

Negotiating trade contracts: Import/Export Price Indexes data have been useful in both multilateral and bilateral trade agreements. Government agencies that have used the data in negotiating trade contracts include the Department of State, the Department of Commerce, and the office of the U.S. Trade Representative.

Analyzing import prices by locality of origin: The IPP produces import indexes broken down by locality of origin. These indexes can be used to examine how the U.S. economy is affected by economic variables in other regions.

What goods and services do the Import/Export Price Indexes measure?

The Import/Export Price Indexes measure all goods except for military goods, works of art, used items, charity donations, railroad equipment, items leased for less than a year, rebuilt and repaired items, and selected exports (custom-made capital equipment). Covered services are air freight and air passenger fares.

What prices are used to calculate the Import/Export Price Indexes?

The majority of prices used in calculating import price indexes are quoted FOB (Free On Board) Foreign Port and the majority of prices used in calculating export price indexes are quoted FAS (Free Along Ship) U.S. Port; duty is not included. While the International Price Program prefers exit point price bases, point of origin or entry point price bases are used if they are the industry standard.

 

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
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