Import and Export Price Deflation Continued in December 2014. What Is Next?

January 14th, 2015
in aa syndication

Written by

Having lived my life in the world of inflation, and seeing the dramatic fall of the export and import price indices - just leaves me speechless. I am not a fan of disruption or rapid change as it leads to bad things in the short term. Literally everything deflated this month.


Follow up:

  • with import prices down 2.5% month-over-month, down 2.3% year-over-year;
  • and export prices down 1.0% month-over-month, down 1.9% year-over-year..
  • the markets were expecting:
  Consensus Range Consensus Actual
Export Prices - M/M change -2.0 % to -0.3 %  -0.5%  -3.2%
Import Prices - M/M change -3.4 % to -0.5 %  -2.7%  -5.5%

There is only marginal correlation between economic activity, recessions and export / import prices. Prices can be rising or falling going into a recession or entering a period of expansion. Econintersect follows this data series to adjust economic activity for the effects of inflation where there are clear relationships.

Econintersect follows this series to adjust data for inflation.

Year-over-Year Change – Import Prices (blue line) and Export Prices (red line)

There are three cases of deflation outside of a recession – early 1990′s, late 1990′s, and mid 2000′s. Import price deflation is normally associated with strengthening of the dollar relative to other currencies.

According to the press release:

All Imports: U.S. import prices fell 2.5 percent in December, the largest 1-month decline since a 4.6- percent drop in December 2008. Import prices have not recorded a monthly advance since rising 0.3 percent in June and fell 7.3 percent over the second half of 2014. The price index for imports decreased 5.5 percent overall in 2014, the largest calendar-year drop since falling 10.1 percent in 2008.

All Exports: Prices for overall exports declined 1.2 percent in December following a 0.8-percent decrease in November and a 0.9-percent drop in October. In December, both agricultural and nonagricultural export prices contributed to the 1.2-percent decrease, which was the largest monthly decline since the index fell 1.7 percent in June 2012. The price index for U.S. exports decreased 3.2 percent in 2014, the largest calendaryear drop since the index declined 3.4 percent in 1998.

How moderate the price increases have been over the past year is obvious from the graphic below.

Month-over-Month Change – Import Prices (blue line) and Export Prices (red line)

The biggest mover of import and export prices are oil (imports) and agricultural products (exports).

Oil Import Price Change Month-over-Month (blue line) and Agriculture Export Change Month-over-Month (red line)

Export / Import prices are the first inflation numbers reported each month.

Caveats on the Use of the Export / Import Price Index

Both import and export prices index values shown in this post is a weighted average for the the entire category of exports or imports. The BLS has many sub-categories relating to a particular commodity or goods. Econintersect using spot checks believes these subindexes are accurate.

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