Development of external trade price indices - 1 quarter

Quarter-on-quarter comparison:

Export prices in Q1 2009 compared do Q4 2008 increased by 4.2 % (in Q4 2008 + 2.4 %), import prices increased by 0.9 % (in Q4 2008 – 0.1 %).

In export prices among more important groups prices grew most in 'machinery and transport equipment' by 6.9%, 'miscellaneous manufactured articles' by 6.5 % and prices of 'manufactured goods classified chiefly by material' by 2.5 %. By contrast, prices dropped in 'crude materials, inedible, except fuels' by 5.3 %, 'chemicals and chemical products' by 4.9 % and in 'mineral fuels, lubricants and related materials' by 0.6 %.

In import prices the biggest price growth was recorded in 'miscellaneous manufactured articles' by 5.8%, 'machinery and transport equipment' by 5.2% and in 'food, beverages and tobacco' by 4.7%. By contrast, falling were prices of 'mineral fuels, lubricants and related materials' by 15.2% (especially petroleum and petroleum products), 'crude materials, inedible, except fuels' by 3.7% and 'chemicals and chemical products' by 1.1%.

External trade price development was again widely affected by the CZK exchange rate to the leading
foreign currencies.

The q-o-q exchange rate index includes two most important currencies from the aspect of Czech external trade, i.e. EUR and USD; q-o-q 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 q-o-q import price indices, q-o-q 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 in both the imports and exports, external trade prices have a strong relation to exchange rate impacts. This relation could naturally be even stronger in m-o-m comparison, however, also in q-o-q index it is relatively strong as shown in graphs. It is rather logical conclusion because the contracts with foreign entities are, as a rule, signed for a longer period of time and the longer is the contract period, the stronger is the relation to exchange rates.

The above graphs clearly show that lower growth rate of strengthening of the CZK to EUR and a moderate weakening to USD in Q3 2008 resulted to a moderate drop of export price indices and even a slight growth of import price index. In Q4 CZK weakened significantly and especially to USD, which showed even in the export price growth. Import prices did not follow this trend which can be attributed to the oil price drop. In Q1 2009 strong weakening of CZK to EUR continues and showed in the import price increase.

In Q1 2009, the value of terms of trade compared with Q4 2008 was 103.3% (in Q4 2008 102.5%). In groups important in terms of weight positive values of terms of trade were recorded in 'mineral fuels, lubricants and related materials' (117.2%), 'manufactured goods classified chiefly by materials' (101.8%) and 'machinery and transport equipment' (101.6%). In contrast, more significant negative values were recorded in 'chemicals and chemical products' (96.2%), 'food, beverages and tobacco' (96.8%) and 'machinery and transport equipment' (99.0%) and 'crude materials, inedible, except fuels' (98.3%).


Year-on-year comparison:

In Q1 2008 export prices increased by 5.2% (in Q4 2008 –1.3%). Prices took and upward trend after a while since they last recorded a growth in Q3 2007. A significant growth came mainly from the CZK exchange rate to EUR and USD when CZK started to weaken to these currencies. More marked increases were recorded in prices of 'manufactured goods classified chiefly by material' by 9.7%, 'miscellaneous manufactured articles' by 7.2% and in 'machinery and transport equipment' by 6.8%. Among more important groups a price drop was recorded in 'crude materials, inedible, except fuels' by 19.7%, 'food, beverages and tobacco' by 10.2% and in 'chemicals and chemical products' by 3.5%.

Import prices increased in Q1 2009 by 1.6 % (in Q4 2007 –1.6 %). The price increase was attributed mainly to a weak CZK exchange rate. More marked price rise was registered in 'crude materials, inedible, except fuels' by 17.8%, 'miscellaneous manufactured articles' by 8.4% and the most important group 'machinery and transport equipment' increased by 5.2% Falling were only prices of 'mineral fuels, lubricants and related materials' by 17.3% and 'chemicals and chemical products' (-1.4%).

Terms of trade reached in Q1 2009 the value of 103.5 %, y-o-y, (i.e. by 3.2 p.p. more than in Q4 2008) and for the second month they continue to show positive values – see graph below. The highest value was recorded for 'mineral fuels, lubricants and related materials' (123.7%). 'Manufactured goods classified chiefly by material' reached the value of 108.2% and 'machinery and transport equipment' 101.5%. Among more important groups the terms of trade negative values were recorded in 'crude materials, inedible, except fuels' (68.2%), 'food, beverages and tobacco' (84.8%) and 'chemicals and chemical products' (97.9%).

Different development trends in export and import prices were harmonised again since Q4 2007. 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 is very significant in the quarter-on-quarter comparison and markedly affects also the level of y-o-y external trade price indices. In Q1 2009 CZK exchange rate to EUR and USD weakened markedly, y-o-y, which corresponds to high growth rate of export price indices. The development of quarterly exchange rates (y-o-y changes) is clear from the graph below.


Export price indices adjusted y-o-y by exchange rate

The CZSO makes experimental calculations of monthly 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 30 %). 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 except for June 2007, it decreased their amount (CZK was mostly strengthening to foreign currencies). In June 2007, the exchange rate increased the price index due to weakening of CZK to EUR. After elimination of the exchange rate influence, export prices would have been increasing in all months in 2007 and 2008: In 2008, especially in July it is obvious how a strong exchange rate affected the external prices decrease. In Q1 2009 the situation reversed and weak CZK exchange rate caused a massive increase of the export price indices.

The graph above shows that the exchange rate markedly influenced also the import price indices. For the whole observed period except of December 2008 it decreased their amount. After elimination of the exchange rate influence, export prices would have been increasing from January 2007 until November 2008. Like in exports, there is an obvious strong exchange rate influence in June and July 2008 resulting into a marked drop of import prices. Conversely, in December 2008 the exchange rate influence increased the import price index, which came from weakening of CZK to USD. CZK moderately strengthened to EUR. In Q1 2009, like in exports, a weak exchange rate of CZK increased the import price index.

From the above graph it is clear that in the period from January 2007 to September 2008 the exchange rate pushed the y-o-y terms of trade values up and from October 2008 it pushed them down. This happened due to the fact that in the currency basket there is higher proportion of USD in imports compared to exports. As it is obvious from the graph Monthly Exchange Rates in November and December 2008 CZK strengthened to EUR and, concurrently, weakened to USD. From February 2007, with a little exception in June 2007, the terms of trade values were decreasing continually until December 2007 when, for the first time after sixteen months, they showed negative values. In March and April 2008 the terms of trade increased, however, from May they began to fall, even more profoundly, to negative values. In August 2008 the terms of trade figure moderately increased but in September due to the exchange rate influence, fell again. From October 2008 the terms of trade began to grow again. In Q1 2009 the terms of trade show so far positive values and no marked fall was registered.

What other reasons caused a drop of the y-o-y terms of trade? The above graph includes groups showing more significant wobbles in the terms of trade development. This applies to 'crude materials, inedible, except fuels' (especially metaliferrous ores and metal scrap) where import prices grew faster than export prices. An interesting group is mainly mineral fuels and related chemicals (especially plastics). The growth of terms of trade in the previous graph from October to December 2008 can be attributed to the increase of terms of trade mainly in 'mineral fuels, lubricants and related materials'. How would the terms of trade value develop if the observed groups would not include 'mineral fuels, lubricants and related materials'?

As it is clear from the above graph, 'mineral fuels, lubricants and related materials' increased the total value of y-o-y terms of trade in the period from January to September 2007, from October 2007 to October 2008 they had a downward effect on terms of trade and from November 2008 mineral fuels again had a an upward effect on the terms of trade value. It is naturally related to the world market price development, especially to crude oil prices. Import prices, which compared to export prices, include higher proportion of crude materials respond more sensitively to price turbulences and therefore when prices of crude materials go up, terms of trade, as a rule, go down and, conversely, when prices of crude materials fall, terms of trade grow.

The following table shows published external price indices without adjustment


Prapared by: Vladimír Klimeš, price statistics department
Branch director: RNDr. Jiří Mrázek, tel. 274 052 533