Import and Export Price Index: What it is, How it Works, Examples

What Are the Import and Export Price Indexes (MXP)?

The U.S. import and export price indexes (MXP) measure the change in prices of goods and services purchased from abroad by U.S. consumers and businesses (imports) and sold to foreign buyers (exports). The MXP measure changes in the prices of non-military goods and services.

The indexes provide information as to the strength of the U.S. economy and consumer spending, the demand for U.S. goods abroad, and the pace of rising import prices.

The MXPs are published for many different types of commodities, goods and service industries, location of origin, and location of the destination. The indexes are updated once a month and reflect import and export price changes from the previous month. The U.S. import and export price indexes (MXP) are produced by the Bureau of Labor Statistics (BLS) International Price Program (IPP).

How Import and Export Price Indexes (MXP) Work

The U.S. import and export price indexes (MXP) measure changes in prices of goods and services imported into and exported from the U.S. for the top five trading partners for the United States, including:

• Canada
• China
• Germany
• Japan
• Mexico

The import and export price indexes represent one of the three major metrics that help the Bureau of Labor Statistics (BLS) measure the change in prices of goods and services in the U.S. economy. The other two metrics include the Consumer Price Index (CPI), which measures price changes for a basket of consumer goods, and the Producer Price Index (PPI), which measures price changes in commercial goods sold.

How MXP Data Is Compiled?

The indexes are created by compiling the price data that is collected from exporter declarations and entry documents of imported goods. The BLS defines its indexes as "containing data on changes in the prices of non-military goods and services traded between the U.S. and the rest of the world." These measures, it adds, "show how prices of a market basket of goods and services in international trade change from one period to the next."

Not all goods are included in the indexes, some of the exclusions include:

• Military goods
• Works of art
• Used items
• Charity donations
• Railroad equipment
• Items leased for less than a year
• Rebuilt and repaired items

Not all U.S. international trade is conducted in U.S. dollars (USD). The BLS says 6% of imports and exports currently surveyed are priced in foreign currencies. For its indexes, all prices are converted to the local currency, using an average exchange rate from the month prior to the pricing month.

The International Price Program (IPP) selects establishments based on their trade value in imports and exports throughout the year. A BLS field economist usually visits the company to establish it as part of the program and select the products to be priced monthly. From there, prices are usually collected via a secure internet address or some cases, by telephone or by fax.

How to Read the Import and Export Price Indexes

By publishing the MXP as an index, it helps to measure changes in prices when compared to a base year. The indexes use the base year of 2000, which corresponds to the index value of 100. The price changes can be measured with respect to the base year and its corresponding 100 index value.

For example, the import price index of 106.8 for consumer goods in October 2017 means that there was a 6.8% increase in import prices since 2000. Similarly, a 39.2 index reading for computers in October 2017 means a 60.8% decrease in prices since 2000 (or 100-39.2).

How Import and Export Price Indexes (MXP) Are Used

The MXP serve many purposes. Among other things, they can be used to:

• Deflate government trade statistics: Because trade statistics are reported and aggregated in nominal dollar terms, analysts can use MXPs to convert them into real values.
• Predict future prices and domestic inflation: The prices of some consumer goods may in part depend on the cost of imported goods or raw materials used in their domestic production.
• Help the Federal Reserve Board (FRB) decide which monetary policies to implement: Tracking trade flows and the expected future course of domestic inflation are both important considerations in setting policy.
• Measure exchange rates and negotiate trade contracts: MXPs can be used to estimate or set exchange rates and currency exchange price escalation factors for trade agreements and contracts.
• Identify specific industry and global price trends: MXPs for different industries, goods, or countries of origin can be used to help identify trends across these different dimensions.

The Import and Export Price Indexes (MXP) and Investing

MXPs can help to identify price and inflation trends, which are important factors in investment markets and, as such, worthwhile for investors to keep tabs on.

Data from these indexes often has a direct impact on bond markets. The indexes are used to help measure inflation in products that are traded globally. Bond prices will often decrease when importing inflation becomes too high because it erodes the value of the original investment.

Inflation can also hurt equity markets. As inflation increases, central banks sometimes raise interest rates to curtail rising prices. Higher interest rates make it more expensive to borrow money and encourage consumers to save. Often, the upshot is falling stock prices.

Example of the Import and Export Price Indexes

Typically, the data from the U.S. import and export price indexes (MXP) are compared on a month-to-month or year-to-year basis. However, the index point changes are converted into percentage terms. For example, let's say the following data was reported:

• Oct. 2017 export price index = 162.6
• Oct. 2016 export price index = 168.4
• Year-to-year index point change = -5.8

To convert to a percentage:

• Year-to-year index point change = -5.8
• Divide the point change by the previous period of 168.4 (for Oct. 2016)
• Divide -5.8 / 168.4 = -0.034
• Convert the decimal to a percent: Multiply 100 by -.034 = -3.4%

In other words, the year-to-year percentage change in the export price index was -3.4% from Oct. 2016 to Oct. 2017.