Development of external trade price indices - 4. quarter of 2007 and year 2007

Quarter-on-quarter comparison:

Export prices Q4 2007 compared to Q3 2007 decreased by 3.2% (Q3 price remained unchanged). Import prices decreased by 2.6 % (in Q3 +0.1%).

In export prices the most marked decrease (-3.9%) was recorded in 'chemicals and related products' (especially 'organic chemicals'), in 'machinery and transport equipment' (-3.7%) and in 'crude materials, inedible except fuels' (-3.4%, mainly wood and cork). Among groups more important in terms of weight only prices of 'food beverages and tobacco' went up by 3.2% (mainly cereals and cereal preparations).

In import prices the most marked drop by 4.7% was recorded in 'manufactured goods classified chiefly by material' (especially non-ferrous metals), 'crude materials, inedible, except fuels' by 4.0% (especially crude rubber), 'miscellaneous manufactured articles' by 3.1% and 'machinery and transport equipment' by 2.9%. Among groups most important in terms of weight a price growth was recorded only in 'mineral fuels, lubricants and related materials' by 2.9% and 'food, beverages and tobacco' by 0.4%.

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 a significant strengthening of CZK exchange rate in the last two quarters and its impact on the decrease of import and export price indices.

In Q4 2007, the value of terms of trade compared with Q3 2007 was 99.4 % (in Q3 2007 it was 99.9 %). In groups important in terms of weight negative values of terms of trade were recorded in 'mineral fuels, lubricants and related materials' (96.7%), 'chemicals and related products' (98.9%, particularly organic chemicals), 'machinery and transport equipment' (99.2%) and 'miscellaneous manufactured articles' (99.9%). Among other groups positive values of terms were recorded in 'food, beverages and tobacco' (102.8%, mainly cereals and cereal preparations), 'manufactured goods classified chiefly by materials' (101.8%) and 'crude materials, inedible, except fuels' (100.6%).


Year-on-year comparison:

In Q4 2007 export prices fell by 1.2 % (in Q3 +1.9%). The prices thus dropped for the first time since Q3 2006. Their significant decrease came mainly from marked strengthening of CZK to EUR and USD. Most profound drop was recorded for prices in 'machinery and transport equipment' by 3.3% (especially 'telecommunications and sound-recording and reproducing apparatus') and prices in 'chemicals and related products' and 'miscellaneous manufactured articles' both by 2.7%. Prices in all other groups grew, of which prices in 'food, beverages and tobacco' by 15.9% (especially cereals and cereal manufactures) and in 'crude materials, inedible, except fuels' by 2.2% (mainly cork and wood).

Import prices decreased in Q4 2007 by 1.5 % (in Q3 2007 by 0.5 %). The price drop was attributed to a strong CZK exchange rate. The most marked price decline was recorded in 'machinery and transport equipment' (mainly office machines and automatic data-processing machines) and 'miscellaneous manufactured articles', both by 4.6%. Prices decreased also in 'manufactured goods classified chiefly by material' by 3.3% and in 'chemicals and related products' by 1.7%. Prices in all other groups grew. Among groups important in terms of weight price increases were recorded mainly in 'mineral fuels, lubricants and related materials' by 12.1% and in 'crude materials, inedible, except fuels' by 6.7% (metaliferrous ores, in particular).

Terms of trade reached in Q4 2007 the value of 100.3 %, y-o-y, (i.e. by 2.1 p.p. less than in Q3 2007). Y-o-y terms of trade showed positive figures, however, they were falling for the third quarter in a row – see graph below. The highest value was reached in 'food, beverages and tobacco' 109.8 % (mainly in 'cereals and cereal manufactures'): Positive terms of trade values were reached also in 'manufactured goods classified chiefly by material' 103.5% (especially non-ferrous metals), in 'miscellaneous manufactured articles' 102.0% and in 'machinery and transport equipment' 101.4 %. The lowest terms of trade values were recorded in 'crude materials, inedible, except fuels' 95.8 % (metaliferrous ores, in particular).

Different development trends in export and import prices in this quarter were harmonised for the first time from Q3 2005. 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 this quarter the growth of CZK exchange rate was extremely strong. The development of quarterly exchange rates (y-o-y changes) is clear from the graph below.


Development of external trade price indices in 2007

Export prices in 2007 increased y-o-y by 1.3% on average (in 2006 prices dropped by 1.2%). The most significant price increase was recorded in 'crude materials, inedible, except fuels' by 12.6% (especially metaliferrous ores). Among more important observed groups a price increase was recorded in 'manufactured goods classified chiefly by material' by 3.7% and in 'food, beverages and tobacco' by 12.2%. Prices dropped only in 'machinery and transport equipment' (especially 'office machines and automatic data processing machines') and in 'miscellaneous manufactured articles', both by 0.8%.

Import prices, conversely, dropped in 2007, y-o-y, 0.1%, on average (in 2006 +3.0%). The most marked drop of prices was recorded in 'machinery and transport equipment' by 3.7% (mainly in 'office machines and automatic data processing machines'), in 'miscellaneous manufactured articles' by 3.0% and 'mineral fuels, lubricants and related materials' by 1.3%. Conversely, among more important groups the biggest price increase was recorded in 'crude materials, inedible, except fuels' by 7.1% (especially metaliferrous ores), in 'food, beverages and tobacco' by 2.8% and in 'manufactured goods classified chiefly by material' by 2.0%.

Terms of trade reached in total positive value of 102.3% in 2007 (98.5% in 2006). However, the terms of trade figures were gradually falling over the year 2007 – from 103.7% in Q1 to 100.3% in Q4.

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 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 2006 and 2007: In 2007, especially in the last two months it is obvious how a strong exchange rate affected the external prices decrease.

The graph above shows that the exchange rate markedly influenced also the import price indices. For the whole observed period it decreased their amount. After elimination of the exchange rate influence, export prices would have been increasing in all months of 2006 and 2007.

From the above graph it is clear that in the period from January 2006 to April 2006 the exchange rate pushed the y-o-y terms of trade values down and from May 2006 to February 2007 it pushed them up. 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 just in the period from January 2005 to April 2006 CZK strengthened to EUR and, concurrently, mostly weakened to USD. The graph also suggests that even after elimination of the exchange rate influence the terms of trade would have been gradually growing from May 2006 to February 2007, however, this influence grew due strengthening of the exchange rate. From February 2007, with a little exception in June 2007, terms of trade values were falling continually and in December 2007 they showed negative figures for the first time after sixteen months.

What other reasons caused a gradual drop of the y-o-y terms of trade? The above graph includes groups showing more significant downward trend in the terms of trade development since 2007. This applies to 'crude materials, inedible, except fuels' (especially metaliferrous ores) where import prices grew faster than export prices but especially in mineral fuels and related chemicals (especially plastics). 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' decreased the total value of y-o-y terms of trade in the period from January to August 2006, and in the period from September 2007 they pushed the terms of trade value up and since October 2007 mineral fuels again had a downward 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