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June 1990, Vol. 113, No. 6
Import and export price gains ease in 1989
Kim Arbogast and Adam Ochlis
Prices of U.S. imports advanced 1.9 percent during 1989, as all major categories expect fuels recorded annual price declines or smaller rates of increase than in 1987 and 1988.1 (See table 1.) Prices of fuels and related products, noted for their volatility, rose 30 percent over the year after declining more than 16 percent in 1988. When fuels are excluded, import prices actually fell 0.5 percent in 1989. In 1987 and 1988, nonfuel import prices had advanced 8.9 and 6.9 percent, respectively, reacting to the depreciating dollar and strong domestic growth.
Export prices climbed just 0.6 percent in 1989, following gains of 6.0 and 6.4 percent in 1987 and 1988. A decrease in food prices from the previous year's drought-inflated levels, as well as weaker world demand for industrial products, helped to dampen price increases. Export prices decreased in the year's final three quarters after a relatively steep 1.5-percent jump in the first quarter, in part the result of strong export growth in the first half of the year.
Developments influencing prices
Exchange rates influenced import and export prices throughout 1989. The year marked the first time since 1984 that the trade-weighted value of the dollar strengthened against foreign currencies. The 3.5-percent annual appreciation of the dollar, spurred by the 7.3-percent gain in the first half of the year,2 contributed heavily to the 0.8-percent drop in prices for all nonfuel imports during the second quarter. The April-to-June movement represented the year's largest 3-month decline and the steepest quarterly slide in nonfuel import prices since the 1.8-percent decrease recorded for the first quarter of 1985. (See chart 1.)
The stronger dollar in the first half of 1989, which lowered United States import prices, and the slowing U.S. economy in the second half of the year, which reduced industrial demand, had their greatest effect on prices for imported raw materials and the finished goods they are used to produce. The rapid growth in prices for the intermediate manufactures category experienced during the 2 earlier years came to a halt in 1989 when prices decreased 0.7 percent after double-digit advances in 1987 and 1988. The same was true for the machinery and transport equipment category, where prices rose a modest 0.2 percent after averaging 6.6-percent increases for the preceding 2 years. (See chart 2.)
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1 Price developments discussed in the article are based on data from the Bureau of Labor Statistics International Price Program (IPP). That program produces import and export price indexes based on the Standard International Trade Classification (SITC) scheme. Both indexes use a modified laspeyres formula. Price data are collected for more than 22,000 products, and are not seasonally adjusted. beginning with data for the first quarter of 1988, released in April of that year, IPP indexes were weighted by the value of trade in 1985. (Formerly, the indexes were weighted by the value of trade in 1980.) In addition, the indexes were recalculated from 1985 forward using the new weights. The Bureau also publishes these series by Standard Industrial Classification (SIC), as determined by U.S. Office of Management and Budget, and end-use classification as developed by the U.S. Department of Commerce's Bureau of Economic Analysis (BEA).
1 These results are based in the International Price Program's nominal average exchange rate index. The average exchange rates indexes measure the change in the price if trade-weighted baskets of currencies against the dollar and are designed to match the import and export price index series published by BLS at the 2-digit, 1-digit, all-import, and all-export levels as defined by the Standard International Trade Classification, Rev. II system.
Dollar's fall boosts U.S. machinery exports, 1985-90.July 1991.
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