Written by Steven Hansen
September 2012 is the fifth 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 0.5% year-over-year and imports down 0.6% (down 0.5% 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: Prices for overall exports increased for the third consecutive month in September, rising 0.8 percent following advances of 1.0 percent in August and 0.4 percent in July. Rising prices for both agricultural and nonagricultural prices contributed to the September advance. Despite rising 2.2 percent over the past three months, export prices fell 0.5 percent between September 2011 and September 2012.
All Imports: Import prices rose 1.1 percent in September following a 1.1 percent advance the previous month. Those were the first monthly increases for the index since a 1.4 percent rise in March. Higher fuel prices were the largest contributor to the September advance in overall import prices, although nonfuel prices increased as well. Despite the recent advances, import prices declined 0.6 percent over the past 12 months, the fifth consecutive month of declining year-over-year changes.
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% year-over-year (August 2012)
- Finished manufactured goods (PPI) = +2.0% year-over-year (August 2012)
- Exports = Contracted 0.9% year-over-year (August 2012)
- Imports = Contracted 2.2% year-over-year (August 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 1.3% year-over-year, and has a 23.0% 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.