FX International Payments
By Karen Lynch
The Import-Export Price Indexes measure the average monthly change in prices (excluding customs duties or other taxes) for most goods and some services crossing U.S. borders.2 A recent MXP release showed prices for U.S. exports up 0.4 percent in July 2017, after dropping 0.2 percent in June and 0.5 percent in May. Year over year, export prices were up 0.8 percent from July 2016 to July 2017, compared to a 3 percent drop from July 2015 to July 2016.3
Import prices were up 0.1 percent in July 2017, following declines in each of the two previous months (of 0.2 percent and 0.1 percent). Year over year, import prices were up 1.5 percent in July, compared to the 3.7 percent drop from July 2015 to 2016.4
Beyond such summary statistics, the BLS breaks down price changes by industry classifications and by some countries and/or regions. For example, "wood product manufacturing" import prices rose 11.6 percent from July 2016 to July 2017.5 Manufacturing imports from the U.K. dropped 0.9 percent in the same period.6
Government analysts study the indexes for domestic pricing implications – especially inflationary signals – and any changes in the U.S. competitive position. For negotiating international trade agreements, governments put particular focus on understanding the prices of goods and services both before and after customs duties and other taxes.
Generally, "when the price of what is being exported rises, or when the price paid to foreigners for imported goods falls, terms of trade improve and U.S. competitiveness is said to be greater," according to the Council of Professional Associations on Federal Statistics (COPAFS). "Since various policies can change the terms of trade, it is important to measure and keep track of it."7 Other important measures, such as the U.S. balance of trade, rely on the MXP. As such, the indexes can also signal future pressures on the U.S. dollar, the COPAFS says.
Import-export traders make extensive use of the indexes for product pricing. "A major input into any model used to forecast price trends is past prices."8 Elasticity estimates can use the MXP to determine the correlation of product performance overseas to economic conditions versus pricing.
The implications of the indexes can be significant. "Declining prices of imported inputs to manufactured goods have an indirect impact on the level of output prices by lowering the cost of production," according to the International Monetary Fund (IMF). "More directly, if import prices for a product are falling, national producers of that product will have to lower their prices to preserve their competitiveness." Seasonal price levels or other trend information can also be gleaned from indexes over time.9
Another key consideration is the "pass-through" of currency exchange fluctuations to import-export pricing. For example, prices and volumes of international trade are influenced by movement of the dollar's exchange rate, since a stronger dollar typically results in lower prices for imports and higher prices for exports. Companies look to determine how much any price changes are due to this pass-through, rather than market factors. The BLS notes that MXP helps companies answer the question, "Is volume changing because of relative prices, because of greater (or lesser) demand for a product overseas, or can it be related to new policies, such as a raise in the minimum wage?"10
In addition, import-export trade contracts often include a mechanism to adjust prices based on the MXP as an agreed measure of inflation.11 "Appropriate import price indices can be used as an escalator for a long-term contract signed by a manufacturing firm to purchase production inputs from abroad," the IMF says. The same goes for a contract signed by an exporter to deliver a product to a foreign buyer.12
However, there are limits to the value that businesses can derive from the indexes. The fact that actual price information is not published by the BLS – only the rate of change in various categories – makes it hard to use the index to compare specific products within specific markets. The bureau cautions care when using the data for non-government purposes.13
For its part, the IMF also notes that competitive analysis of the evolution of prices should be done not only in an import-export trader's domestic currency, but also the currencies of trading partners. "For example, a country's stable export price index may mask a devaluation leading to higher competitiveness of the products that the country exports," the IMF says.
The U.S. Import-Export Price Indexes, issued monthly, provide a tool that import-export traders can use for product pricing, contract negotiations, and other business benefits.
Karen Lynch is a journalist who has covered global business, technology and policy in New York, Paris and Washington, DC, for more than 30 years. Karen also is a principal at Content Marketing Partners.
1. “Import-Export Price Indexes,” U.S. Bureau of Labor Statistics; https://www.bls.gov/mxp/
2. “Comparison of BLS Price and Spending Measures,” U.S. Bureau of Labor Statistics; https://www.bls.gov/cex/oplc_program_comparisons.htm
3. “U.S. Import and Export Price Indexes,” U.S. Bureau of Labor Statistics; https://www.bls.gov/news.release/ximpim.nr0.htm
5. “U.S. Import Price Indexes, by NAICS,” U.S. Bureau of Labor Statistics; https://www.bls.gov/news.release/ximpim.t03.htm
6. “U.S. Import Price Indexes, by Locality of Origin,” U.S. Bureau of Labor Statistics; https://www.bls.gov/news.release/ximpim.t07.htm
7. “Get to Know a Principal Economic Indicator: U.S. Import and Export Price Indexes,” Council of Professional Associations on Federal Statistics; http://www.copafs.org/UserFiles/file/handouts/ExportPriceIndicesFinal.pdf
8. “Import-Export Price Indexes: Frequently Asked Questions,” U.S. Bureau of Labor Statistics; https://www.bls.gov/mxp/ippfaq.htm
9. Export and Import Price Index Manual – Theory and Practice, International Monetary Fund; https://www.imf.org/external/np/sta/xipim/pdf/xipim.pdf
10. “Import-Export Price Indexes: Frequently Asked Questions,” U.S. Bureau of Labor Statistics; https://www.bls.gov/mxp/ippfaq.htm
11. “Get to Know a Principal Economic Indicator: U.S. Import and Export Price Indexes,” Council of Professional Associations on Federal Statistics; http://www.copafs.org/UserFiles/file/handouts/ExportPriceIndicesFinal.pdf
12. Export and Import Price Index Manual – Theory and Practice, International Monetary Fund; https://www.imf.org/external/np/sta/xipim/pdf/xipim.pdf
13. “Import-Export Price Indexes: Frequently Asked Questions,” U.S. Bureau of Labor Statistics; https://www.bls.gov/mxp/ippfaq.htm