Development of external trade price indices - 1. quarter of 2007
Product Code: e-7232-07
Development of external trade price indices in the first quarter of 2007
Month-on-month comparison:
Export prices increased in average in the Q1 2007 month-on-month by 0.7 % (in Q4 2006 they dropped by 0.4 %). Import prices increased in average in the Q1 month-on-month by 0.2 % (while in Q4 2006 they decreased by 0.7 %).
Import prices in all observed groups increased, however, the fastest growth showed 'crude material, inedible, except fuels' ( 2.5 % up, mainly 'oil-seeds and oleaginous fruits'). Prices of 'machinery and equipment' increased by 0.3 % (especially 'other transport equipment').
The same as for export , also import prices, from the groups important in terms of weight most increased the prices of 'crude material, inedible, except fuels' by 1.6 % (especially 'metalliferrous ores and metal scrap'). Only the prices of 'machinery and transport equipment' fell by 0,2 % (chiefly 'office machines and automatic data-processing machines') and 'miscellaneous manufactured articles' (by 0,1 % (mainly 'articles of apparel and clothing accessories').
External trade price development was widely affected by the CZK exchange rates to foreign currencies.
The m-o-m exchange rate index includes two most important currencies from the aspect of Czech external trade, i.e. EUR and USD; m-o-m indices of CZK exchange rates to these currencies were weighted by the weight which pertains to those currencies in the export price index.
Similarly, when comparing with m-o-m import price indices, m-o-m EUR and USD exchange rate indices were weighted by the weight which pertains to these currencies in the import price index.
Thus, it becomes clear that both in the case of import and export, the external trade prices in the m-o-m expression, have a strong relation to exchange rate influences. It is rather logical conclusion because the contracts with foreign entities are, as a rule, signed for a longer period of time.
In Q1 2007, the value of the terms of trade was 100.5 % (in Q4 2006 it was100.3 %). The highest terms of trade value was recorded for 'mineral fuels, lubricants and related materials' 101.0 %. In the most important section in terms of weight 'machinery and transport equipment' the terms of trade value reached 100.5 %, i.e. by 0.2 p.p. more than in Q4 2006. The negative terms of trade value was only in 'chemicals and related products' 99,8 %.
Year-on-year comparison:
In Q1 the export prices rose in average by 1.9 %. The prices grew despite strengthening of CZK to EUR and USD. The most significant growth was recorded for prices of 'crude materials, inedible, except fuels' by 19.7 % (mainly 'oil-seeds and oleaginous fruits'). In average, the prices for 'machinery and transport equipment' remained the same. From groups important in terms of weight only the prices of 'miscellaneous manufactured articles' decreased by 0.6 % (mainly furniture).
Import prices decreased in the Q1 by 1.7 % in average (in Q4 2006 by 1.4 %). The biggest fall was observed in relation to the world market development, among the prices of 'mineral fuels, lubricants and related materials' by 9.4 % (especially 'coal, natural gas and petroleum'). Prices of 'machinery and transport equipment' dropped by 4.0 % (mainly 'office machines and automatic data-processing machines'). While from important sections as for weights mainly the prices of 'manufactured goods classified chiefly by material' increased by 5.2 % (especially for non-ferrous metals).
Terms of trade reached in Q1 2007 y-o-y positive value of 103.7 % (i.e. by 2.3 p.p. more than in Q4 2006); terms of trade were growing quarterly from Q2 2006 – see the graph below). The highest value was in 'crude materials, inedible, except fuels' 116.4 %, in 'machinery and transport equipment' 104.2 % (in Q4 2006 102.3 %). From important sections as for weights, a negative value of terms of trade was only at 'manufactured goods classified chiefly by material' 99.4 %.
What was the reason for the different price development of import and export prices? As it was shown above, external trade prices are exposed to many effects, among other things, also to the CZK exchange rate to foreign currencies. This influence is important and often even decisive mainly in m-o-m expression; however, it markedly affects also 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 calculations of external trade price indices also reported as such – this share, however, makes only about 25 %). Nevertheless, it was verified that despite the 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.
It is clear from the graph that the exchange rate was important also for export price indices. For the whole observed period it decreased their amount (CZK was mostly strengthening to foreign currencies). After elimination of the exchange rate influence, export prices would have been increasing in all months.
The above graph suggests that the exchange rate influence was important for the amount of import price indices. It decreased their amount for the whole observed period. After elimination of the exchange rate influence import prices as well as export prices would have been growing in all months.
What influenced the development of y-o-y terms of trade and how the terms of trade of individual sections developed?
It was already shown above that external trade price indices are markedly influenced by the development of CZK exchange rate to foreign currencies, especially to EUR and USD.
However, since the share of prices contracted in EUR is higher for export than for import, the exchange rate development of CZK to EUR and USD influences also the development of terms of trade.
It is clear from the graph that while from January to October 2005 the exchange rate was increasing y-o-y terms of trade, in the period from November 2005 to April 2006 it was in the opposite way and from May 2006 to March 2007 it made them increase. The reason is that in the currency basket the USD share is higher for import than for export. As it is clear from the graph of Exchange rate change, y-o-y, just in the period from November 2005 to April 2006, CZK was mostly depreciating to USD (unlike EUR). The graph also suggests that even without the exchange rate influence the terms of trade would be gradually growing since May 2006 but the influence was further strengthening the growth.
What are other causes of gradual growth of y-o-y terms of trade from March 2006 (except for the last month subject to analysis – i.e. March 2007)? The above graph shows sections with the most marked development of terms of trade since 2005. They are 'manufactured goods classified chiefly by material' (mainly 'metals and manufactures of metals',) and, most of all, 'mineral fuels, lubricants and related materials' and related chemicals (especially organic chemicals). That means sections with the most marked price turbulences in this period. How would terms of trade value develop after we exclude 'mineral fuels, lubricants and related materials'?
The graph above shows that the section 'mineral fuels, lubricants and related materials' was decreasing the total value of y-o-y terms of trade in the observed period until August 2006 and from September 2006 it was vice-versa. Of course, it is related to price development on the world markets, especially to crude petroleum. Import prices which have higher share of raw materials in comparison to export prices react in more sensitive way to price turbulences and therefore at growth of prices of raw materials the terms of trade are usually decreasing and, vice-versa, when raw material prices are decreasing, the terms of trade are growing.
Elaborated by: Jiří Choun, Price Statistics Department
Director: Jiří Mrázek, phone (+420) 27405 2533