U.S. Import Prices Flat, Export Prices Drop In July

by Ike Obudulu Posted on August 14th, 2018

Washington D.C., USA: U.S Import Price Index which measures change in the price of imported goods and services purchased domestically came in unchanged in the month of July after edging down by a revised 0.1 percent in June, with a jump in prices for fuel imports offset by a drop in prices for non-fuel imports, the U.S. Bureau of Labor Statistics data released today show.

Economists had expected import prices to inch up by 0.1 percent compared to the 0.4 percent decrease originally reported for the previous month.

The unchanged reading on import prices came as prices for fuel imports surged up by 1.6 percent in July after jumping by 1.3 percent in June, but prices for non-fuel prices fell by 0.3 percent for the second straight month.

Higher prices for petroleum and natural gas contributed to the rise in fuel prices, while the drop in non-fuel prices reflected lower prices for non-fuel industrial supplies and materials, foods, feeds, and beverages and capital goods.

Meanwhile, the report said export prices fell by 0.5 percent in July after rising by a downwardly revised 0.2 percent in June.

Export prices had been expected to rise by 0.2 percent compared to the 0.3 percent increase originally reported for the previous month.

The unexpected drop in export prices was the first monthly decrease since June of 2017 and the largest since prices fell 0.6 percent in May of 2017.

The Labor Department said the decline was driven by a drop in agricultural export prices, which plunged by 5.3 percent in July after sliding by 1.0 percent in June.

A 14.1 percent slump in soybean prices was the primary contributor to the drop in agricultural prices, which was the largest monthly decline since October of 2011.

The report said prices for non-agricultural exports were unchanged in July after rising by 0.4 percent in June, as falling prices for non-agricultural industrial supplies and materials and automotive vehicles were offset by rising prices for non-agricultural foods.

Compared to the same month a year ago, import prices were up by 4.8 percent in July, while export prices were up by 4.3 percent.

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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