Development of external trade price indices - 1. quarter of 2006

Month-on-month evaluation:

In Q1 2006, import and export prices in total increased in average by +0.1% month-on-month. In harmony with the development of prices on world markets, especially prices of mineral fuels and metals were increasing more rapidly.

The fastest growth occurred in import prices of ‘mineral fuels, lubricants and related materials’ by +0.9% (mainly electric current; petroleum, petroleum products and related materials). More marked increase was recorded also for prices of ‘manufactured goods classified chiefly by material’ – by +0.7% (non-ferrous metals in particular). Decreasing were prices of ‘machinery and transport equipment’ by –0.2% and, especially, ‘miscellaneous manufactures articles’ by –0.7% (mainly articles of apparel and clothing accessories).

In export prices, the fastest growing were prices of ‘crude materials, inedible, except fuels’ by +1.3% (metalliferous ores and metal scrap in particular) as well as ‘mineral fuels, lubricants and related materials’ by +0.8% (mainly electric current and petroleum products). Prices of ‘machinery and transport equipment’ decreased in average by –0.1% (metalworking machinery in particular). As for significant sections in terms of weights, especially prices of food were decreasing by –0.5%.

External trade prices were significantly influenced again mainly by CZK exchange rate to main foreign currencies.

The month-on-month exchange rate index includes two most important currencies from the point of view of Czech external trade, i.e. EUR and USD; m-o-m indices of CZK exchange rates to those currencies were weighted by the weight, which pertains to those currencies in the import price index.

Similarly, when comparing it with m-o-m export price indices, the month-on-month exchange rate indices of EUR and USD were weighted by the weights, which pertain to those currencies in the export price index. It is clear from the above-mentioned graphs that there is a strong correlation between month-on-month external trade price indices and CZK exchange rates to main foreign currencies.

In Q1 2006, the terms of trade value was 100.0%, i.e. by 0.3 percentage point more than in the Q4 2005. The highest terms of trade value was in ‘crude materials, inedible, except fuels’ (101.7%), while the lowest in ‘manufactured goods classified chiefly by material’ (99.3%). In the most important section in terms of weights ‘machinery and transport equipment’ the terms of trade reached 100.1%, i.e. by 0.3 p.p. more than in the Q4 2005.

Year-on-year evaluation:

In Q1, several influences were prevailing in the year-on-year external trade price development (similarly as in the month-on-month development): increasing prices of ‘mineral fuels, lubricants and related materials’ and metals on world markets on one hand, and on the other the exchange rate of CZK to main foreign currencies (appreciation to EUR and depreciation to USD) with a different influence on the import and export prices. With regard to a longer time horizon, however, those influences were more distinct in the year-on-year development. A marked increase in prices of petroleum and natural gas on world markets was reflected in a significant growth of external trade prices in ‘mineral fuels, lubricants and related materials’ (in import prices almost by +40%). An increase of world prices of metals had an impact especially on the price growth of some subgroups of ‘crude materials, inedible, except fuels’ and ‘manufactured goods classified chiefly by material’.

In Q1 2006, import prices increased in total by +3.0% and thus were increasing already from the Q2 2005. The growth of import prices in total was caused almost exclusively by a marked price increase in ‘mineral fuels, lubricants and related materials’ by +38.6% (mainly gas, petroleum, petroleum products and related materials). Besides that, only prices of ‘manufactured goods classified chiefly by material’ were slightly increasing – by +0.3% (non-ferrous metals in particular). Prices of other sections dropped, the most in ‘miscellaneous manufactured articles’ by –6.9% (especially articles of apparel). Prices of ‘machinery and transport equipment’ decreased by –0.9% (mainly ‘power generating machinery and equipment’).

Influences having an impact on the import price development can be documented also for export prices. They decreased by –1.9% in the Q1 2006. Similarly as for import prices, also there the stronger CZK distinctly decreased the inflation influence of growing prices of raw materials on world markets. Accelerating prices of petroleum and gas also there resulted in a significant increase of export prices of ‘mineral fuels, lubricants and related materials’ by +7.9% (especially gas and petroleum products). World growth of metal prices was adequately reflected in an increase of export prices of ‘crude materials, inedible, except fuels’ by +4.4%, in metalliferous ores and metal scrap in particular. Prices of ‘manufactured goods classified chiefly by material’ markedly fell by –5.6%, however, with a significant price growth of non-ferrous metals. Prices of ‘machinery and transport equipment’ decreased by –1.6% (especially office machines and automatic data-processing machines).

Terms of trade reached the negative value of 95.2% year-on-year in the Q1 2006, which is by 0.5 percentage point less than in the Q4 2005 and at the same time the lowest quarterly value since the revision of prices in the year 2001. Terms of trade thus reflected a structurally differentiated influence of both: growth of world prices as well as CZK appreciation on import and export prices. As for significant sections in terms of weights, the terms of trade value was highest in ‘crude materials, inedible, except fuels’ (107.2%) and ‘miscellaneous manufactured articles’ (106.4%). On the contrary, the lowest value of terms of trade was already since the Q3 2005 in ‘mineral fuels, lubricants and related materials’ (77.8%). In ‘machinery and transport equipment’ the value was also negative (99.3%), i.e. by 0.4 percentage point lower than in the Q4 2005.

As it was shown already above, many influences have an impact on external trade prices; among others, it is the CZK exchange rate to foreign currencies. That influence is significant and often even decisive, primarily in the month-on-month expression; however, it has a marked influence also on the level of y-o-y external trade price indices.

The CZSO makes experimental calculations of external trade price indices adjusted for exchange rate influence. The method used does not allow due to many practical reasons to make a 100% exchange rate adjustment (i.e. not all observed deals made in foreign currencies are for the needs of calculation of external trade price indices also reported as such – this share, however, makes only about 25%). Nevertheless, it was verified that even together with an increasing share of reporting in foreign currencies the currency basket remains basically constant. Thus, it can be stated that at the full exchange rate adjustment the differences between the published price indices and price indices that were adjusted would be even bigger.

The graph shows that the exchange rate influence had an important impact on the amount of import price indices. During each month of the reference period, it was decreasing the amount (CZK in total was appreciating to foreign currencies).

It is clear from the graph that the exchange rate had a strong influence also on the amount of export price indices. In all months of the reference period it was decreasing that amount. After elimination of the exchange rate influence, prices of export would grow during the entire reference period.

Since the share of prices contracted in EUR is higher in exports than in imports, the different CZK exchange rate development to EUR and USD influences not only the development of price indices of export and import, but also their share, i.e. the development of terms of trade as well.

It is clear from the graph that while in the first 10 months of 2005 the exchange rate increased the y-o-y terms of trade, since November it was vice versa. The reason is that in the first 10 months of the year 2005 CZK was appreciating y-o-y both to EUR and USD; however, since November 2005 it was appreciating only to EUR, while to USD it was depreciating. Since November 2005, the exchange rate was thus decreasing export prices more than import prices and therefore it decreased terms of trade as well. It is clear from the graph, too, that even without the exchange rate influence the terms of trade development was degressive; however, this influence was making the fall even deeper.
What are other reasons for the gradual decrease in y-o-y terms of trade? The above-mentioned graph shows sections with the most marked decrease in terms of trade in 2005. They are 'manufactured goods classified chiefly by material' (metals and manufactures of metals in particular) and, most of all, 'mineral fuels, lubricants and related materials' and also chemicals related to them (especially organic chemicals); i.e. groups, in which the most marked price turbulences have recently occurred. Thus, it seems that besides exchange rate influences the main reason for the terms of trade decrease was insufficient capability to reflect import price pressures in export prices.



Elaborated by: Jiří Choun, Prices Statistics Department
Director: Jiří Mrázek, phone number (+420) 27405 2533