Export and Import Prices In Full Deflation Mode in June 2012

Written by Steven Hansen

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.

However, in June 2012 – the unusual event continues 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.

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. Exports are down 1.7% year-over-year and imports down 2.7% (down 0.2% if oil is excluded).

June 2012 export prices fell 1.7% month-over-month while import prices fell 2.7%. The May’s in import prices was mostly due to decline in price of fuels, while the fall in export prices was driven by agriculture products.

According to the press release:

All Imports: Import prices decreased 2.7 percent in June after declining 1.2 percent and 0.1 percent the previous two months. The June drop was the largest monthly decrease since the index fell 4.6 percent in December 2008. The price index for U.S. imports decreased 2.6 percent over the past 12 months, the largest year-over-year decline since the October 2008-09 period. In contrast, import prices rose 13.6 percent for the year ended June 2011.

All Exports: The price index for U.S. exports declined 1.7 percent in June, the largest monthly decline since the index fell 2.0 percent in October 2011. Falling prices for both agricultural and nonagricultural exports each contributed to the decline. U.S. export prices also fell overall for the June 2011-12 period, decreasing 2.1 percent. The decline over the past year was the largest 12-month drop since the index declined 3.6 percent between October 2008 and 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):

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.

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One reply on “Export and Import Prices In Full Deflation Mode in June 2012”

  1. i think this is spot on and a VERY big deal. i’m not too concerned with equities and obviously this is great news for treasuries which have been flashing “price collapse coming” for over a year now. i think a wave of defaults is upon us here in the USA…and i don’t think the bulk of the media wants us to know how close we are to such a catastrophe.

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