Written by Steven Hansen
August 2012 is the fourth 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. However, the trends are that deflation is moderating.
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 0.9% year-over-year and imports down 2.2% (down 0.2% if oil is excluded). This months import prices were mostly influenced month-over-month by fuel cost inflation. Export prices are moderating because of a large increase in foods.
According to the press release:
All Exports: Export prices increased 0.9 percent in August following a 0.4 percent advance in July and a 1.7 percent drop in June. The August increase in overall export prices was the largest monthly rise since the index advanced 1.5 percent in March 2011. Higher agricultural and nonagricultural prices each contributed to the August increase. For the year ended in August, however, export prices fell 0.9 percent.
All Imports: Import prices rose 0.7 percent in August, the first monthly increase since March. The August advance followed a 4.4 percent decline over the previous four months. In August, higher fuel prices more than offset a decrease in the price index for nonfuel imports. Despite the August increase, import prices decreased 2.2 percent over the past year. In contrast, import prices had increased 12.9 percent between August 2010 and August 2011.
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) = 1.4% year-over-year (July 2012)
- Finished manufactured goods (PPI) = +0.5% year-over-year (July 2012)
- Exports = Contracted 1.2% year-over-year (July 2012)
- Imports = Contracted 3.2% year-over-year (July 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 down 7.4% year-over-year, and has a 22.1% 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.