Development of external trade price indices - 4 quarter

Quarter-on-quarter comparison:

Export prices Q4 2009 compared to Q3 2009 increased by 1.0% (in Q3 -3.7%). Import prices increased by 1.2 % (in Q3 –3.8%).

In export prices among more important groups prices grew most in 'crude materials, inedible, except fuels' (+5.4%), 'mineral fuels, lubricants and related materials' (+5.2%), 'miscellaneous manufactured articles' (+1.1%), 'chemicals and chemical products' (+1.1%) and in 'machinery and transport equipment' (+0.7%). A more marked drop was reported only for prices in 'food and live animals' (-1.0%).

In import prices the biggest growth was registered in 'mineral fuels, lubricants and related materials' (+6.3%), in 'manufactured goods specified chiefly by material' and 'food and live animals' (both +1.2%) and in 'machinery and transport equipment' (+0.8%). Among more important groups falling were only prices of 'crude materials, inedible, except fuels' (-4.5%).

The terms of trade figures in Q4 2009 compared to Q3 2009 slightly dropped to 99.8% (in Q3 100.1%). More important negative values were recorded in 'food and live animals' (97.8%), 'mineral fuels, lubricants and related materials' (99.0%), 'manufactured goods specified chiefly by material' (99.3%) and 'machinery and transport equipment' (99.9%). By contrast, among more important groups, positive terms of trade figures were reported for 'crude materials, inedible, except fuels' (110.4%), 'miscellaneous manufactured articles' and 'chemicals and chemical products' (both 100.4%).

External trade price development was widely affected also 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; 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 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 into more moderate drop of export price indices and even a slight growth of import price index. In Q4 2008 CZK weakened dramatically and especially to USD which showed even in export price growth. Import prices did not follow this trend which can be attributed to the USD exchange rate increase and oil price drop. In Q1 2009 strong weakening of CZK to EUR and USD continued and resulted in the import price growth. By contrast, in Q2 2009 CZK strengthened to both currencies and prices went down. Prices fell also in Q3 2009 but more moderately. In Q4 CZK weakened against EUR and pushed prices up.

Year-on-year comparison:

Export prices in Q4 2009 decreased by 3.5 % (in Q3 by 2.2 %). More marked drop was reported for prices of 'mineral fuels, lubricants and related materials' by 11.8 %, 'manufactured goods specified chiefly by material' by 9.9%, 'chemicals and chemical products' by 7.4 % and 'food and live animals' by 6.2 %. Prices of 'machinery and transport equipment' were by 0.1% down. Prices grew only in 'crude materials, inedible, except fuels' by 1.2 % and in 'miscellaneous manufactured articles' by 0.4 %.

Import prices in Q4 2009 declined by 5.7 % (in Q3 - 7.0 %). Prices went down in all groups. More marked drop was reported for prices in 'crude materials, inedible, except fuels' (-21.7%), 'mineral fuels, lubricants and related materials' (-16.1 %), 'food and live animals' and 'chemicals and chemical products' (both -5.8 %) and in 'machinery and transport equipment' (- 2.2 %).

Terms of trade reached in Q4 2009 the value of 102.3 %, y-o-y, (i.e. by 2.9 p.p. less than in Q3 2009) and for the fifth month they continue to show positive values – see graph below. The highest value was recorded for 'crude materials, inedible, except fuels' (129.2%). 'Mineral fuels, lubricants and related materials' reached the value of 105.1%, 'miscellaneous manufactured articles' 102.2% and 'machinery and transport equipment' 102.1%. Among more important groups more marked negative terms of trade values were recorded in 'manufactured goods specified chiefly by material' (95.2%), 'chemicals and chemical products' (98.3%) and 'food and live animals (99.6%).

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 and import prices. In Q4 this trend continued. The development of quarterly exchange rates (y-o-y changes) is clear from the graph below.

Year-on-year comparison:

- On average, over the whole year 2009 export prices increased by 0.2% (-4.6% in 2008), import prices decreased by 3.5% (-3.3 % in 2008). The external price development in 2009 was affected by CZK weakening to EUR and USD, which pushed these indices up.

- In export prices of beverages and tobacco went up by 4.6%, prices in 'miscellaneous manufactured articles' by 4.2% and prices in 'machinery and transport equipment' by 4.0%. Among more important groups lower were prices in 'crude materials, inedible, except fuels' (-17.9%), 'mineral fuels, lubricants and related materials' (-10.8%), 'chemicals and chemical products' (-7.0%) and prices of 'manufactured goods specified chiefly by material' (-1.7%).

- In import the biggest price drop was recorded in 'mineral fuels, lubricants and related materials' (-26.0%), 'chemicals and chemical products' (-4.0%), 'manufactured goods classified chiefly by material' (-3.4%), and prices of 'crude materials, inedible, except fuels' (-3.2%). By contrast, among more important groups, the biggest increase was reported for prices in 'miscellaneous manufactured articles' (+3.8%) and prices in 'machinery and transport equipment' (+2.2%).

- Terms of trade reached in total positive value of 103.8% in 2009 (98.7% in 2008). However, the terms of trade growth slowed down in Q4 2009 when the terms of trade figures reached 102.3%.

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 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 and Q4 2009 when a weak CZK exchange rate increased export prices or reduced their decline except for December 2009 when the exchange rate pushed the export price index down.

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. In Q4 2009 the situation became just opposite when in November and December the CZK pushed the import price index down.

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 and from October 2009 the exchange rate pushed the terms of trade values up again. 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 previous 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 in October 2009 they began to fall again.

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 showed an upward effect on the terms of trade value. It is most obvious just in Q2 and Q3 2009. In Q4 the situation began to reverse and in December 'mineral fuels, lubricants and related materials' again had a downward effect on the term 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