Development of external trade price indices - 3 quarter

Quarter-on-quarter comparison:

Export prices in Q3 2009 compared do Q2 2009 decreased by 3.7 % (in Q2 2009 - 4.8 %), import prices decreased by 3.8 % (in Q2 2009 –4.1 %).

In export prices among more important groups prices fell most in 'manufactured goods classified chiefly by material' (-5.3%), 'machinery and transport equipment' (-4.2%), 'miscellaneous manufactured articles' (-3.6 %) and in 'mineral fuels, lubricants and related materials' (-2.2%). Price grew only in 'crude materials, inedible, except fuels' (+5.6%) and in 'chemicals and chemical products' (+1.4 %).

In import prices the price drop was registered in all observed groups, among most important groups the price drops were recorded in 'crude material, inedible, except fuels' (-10.0%), 'miscellaneous manufactured articles' (-4.2%), 'machinery and transport equipment' (-3.9%), ''chemicals and chemical products' (-2.5%) and prices in 'mineral fuels, lubricants and related materials' dropped by 1.6%.

In Q3 2009, the value of terms of trade compared with Q2 2008 was 100.1% (in Q2 2009 99.3%). More positive values were recorded in 'crude materials, inedible, except fuels' (117.3%), 'chemicals and chemical products' (104.0%) 'miscellaneous manufactured articles' (100.6%). In contrast, negative values were recorded in 'manufactured goods classified chiefly by materials' (98.0%), 'mineral fuels, lubricants and related materials' (99.4%) and 'machinery and transport equipment' (99.7%).

The development of external trade prices was significantly 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 the Czech external trade, i.e. EUR and USD and the q-o-q CZK exchange rate indices to these currencies were weighted by the weight pertaining to these foreign currencies in the export and 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 modest drop of export price indices and even a slight growth of import price index. In Q4 2008 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 continued and showed in the import price increase. By contrast, in Q2 2009 the CZK strengthened to both currencies and prices showed a downward effect like in Q3 2009.


Year-on-year comparison:

In Q3 2008 export prices decreased by 2.2 % (in Q2 2009 +1.3%). More marked decreases were recorded in prices of 'crude materials, inedible, except fuels' by 20.6%, ''mineral fuels, lubricants and related materials' by 18.5%, 'chemicals and chemical products' by 9.2% and prices of 'manufactured goods classified chiefly by material' by 6.6%. Among more important groups price increases were recorded for 'miscellaneous manufactured articles' by 3.5% and machinery and transport equipment by 3.1%.

Import prices decreased in Q3 2009 by 7.0 % (in Q2 2009 –2.9 %). More marked price drop was registered in 'mineral fuels, lubricants and related materials' by 36.7% and in 'chemicals and chemical products' and 'manufactured goods classified chiefly by material' both by 6.0%. Growing were only prices of 'miscellaneous manufactured articles' by 2.5% and prices of 'machinery and transport equipment' by 1.8%.

Terms of trade reached in Q3 2009 the value of 105.2 %, y-o-y, (i.e. by 0.9 p.p. more than in Q2 2009) and for the fourth month they continue to show positive values – see graph below. The highest value was recorded for 'mineral fuels (128.8%). 'Machinery and transport equipment' reached the value of 101.3% and 'miscellaneous manufactured articles' 101.0%. Among more important groups markedly negative terms of trade values were recorded in 'crude materials, inedible, except fuels' (89.6%), food beverages and tobacco (95.9%) and 'chemicals and chemical products' (96.6%).

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. Although in Q2 2009 the CZK exchange rate remained weak, import prices showed no increase. This came mainly from high drop of oil prices, which became even more profound in Q3 resulting into further decrease of export prices. The development of quarterly exchange rates (y-o-y changes) is clear from the graph below.


External trade 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 up to 2008 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 and Q2 2009 the situation reversed and weak CZK exchange rate caused a massive increase of the export price indices. This trend survived even in Q3 2009 when a weak CZK exchange rate increased export prices or reduced their decline.

The graph above shows that the exchange rate markedly influenced also the import price indices. For the whole observed period until November 2008 it decreased their amount. After elimination of the exchange rate influence, import prices were increasing from January 2007 until October 2008 (they would not have changed in 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 Q1-03 2009, this trend continued, a weak exchange rate of CZK increased the import price index or slowed-down its decrease.

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-Q3 2009 the terms of trade show so far positive values and no marked fall was registered.

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 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