Written by Steven Hansen
July 2012 is the third month of the unusual event of both import and export prices showing year-over-year deflation. Export / Import prices have deflated several times without a recession occurring – however, deflation is a recession warning flag.
There is only marginal correlation between economic activity, recessions and export / import prices. Prices can be rising or falling going into a recession. Econintersect follows this data series to adjust economic activity for the effects of inflation where there are clear relationships.
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
The story remains the continually moderating year-over-year inflation – however, this moderating cycle should shortly end. Export prices are down 1.2% year-over-year and imports down 3.2% (down 0.5% if oil is excluded). This months import prices were mostly influenced by a price decline in foods but the price decline was widespread. Export prices are moderating because of a large increase in foods.
According to the press release:
All Exports: Export prices rose 0.5 percent in July after declining 1.7 percent in June and 0.5 percent in May. For July, higher agricultural prices more than offset declining nonagricultural prices. Despite the July upturn, the price index for U.S. exports fell 1.2 percent between July 2011 and July 2012, following a 9.8 percent increase for the July 2010-11 period. The decline for the year ended in July was led by a 1.9 percent drop in nonagricultural prices.
All Imports: Prices of U.S. imports fell 0.6 percent in July, the fourth consecutive monthly decline for the index following a 1.4 percent increase in March. Import prices also fell over the past 12 months, declining 3.2 percent after increasing 13.7 percent between July 2010 and July 2011. The July 2011-12 drop was the largest year-over-year decline in import prices since the index fell 5.6 percent for the year ended October 2009.
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)
There are different rates of year-over-year inflation occurring in the economy according to multiple measurements by a single agency (BLS):
- consumers (CPI) = 1.7% (June 2012)
- Finished manufactured goods (PPI) = 0.7% (June 2012)
- Exports = Contracted 1.7% (June 2012)
- Imports = Contracted 2.7% (June 2012)
Each rate of inflation is measuring a different pulse point, and each represents the breadbasket of costs / prices relative to that grouping. It should be pointed out that fuel import prices are up 0.1% year-over-year, and has a 24.1% weight in the import index.
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.