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May 1989, Vol. 112, No. 5
U.S. import and export prices continued to register sizable gains in 1988
L. Livingston and S. Richards
Continuing the previous year's dual upward trend, both U.S. import and export prices posted significant increases in 1988. Following a 10.0-percent advance in 1987, the all-import index increased at a slower 4.1-percent pace in 1988. (See table 1.) Despite a third-quarter slump marked by a 1.3-percent decrease and a simultaneous, trend-reversing rise in the trading value of the dollar, the year's increase in the all-import index was the second largest since the index was first published in 1982. In contrast, the all-export index advanced at a slightly faster pace in 1988, gaining 6.3 percent after a 6.0-percent rise in 1987.1 (See table 1.)
A variety of factors influenced international prices in 1988. Heightened demand due to increased economic strength in the United States and other industrialized countries led to higher prices for both import and export goods. In addition, the dollar abruptly changed course, strengthening in the third quarter before ending the year only slightly lower on both an import and export trade-weighted basis.2 Finally, the high capacity utilization rates exhibited by producers of industrial materials tightened supplies of products such as metals, leading to higher raw materials costs for producers of finished goods.
After peaking in 1987, the U.S. merchandise trade deficit improved in nominal terms in 1988, but ended the year only slightly lower than in 1985. Possible explanations for the persistent trade gap include the absorbing by foreign producers of the effects of exchange rate shifts to maintain market share, and rising domestic prices that mitigated incentives to shift away from imports.
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1 Price developments discussed in this article are based on data from the Bureau of Labor Statistics' International Price program (PPI). That program produces import and export price indexes based on the Standard International Trade Classification (SITC) scheme. Both indexes use a modified Laspeyres formula. Price data are collected for more than 22,000 products, and are not seasonally adjusted. Beginning with data for the first quarter of 1988, released in April, IPP indexes were weighted by the value of trade in 1985. (Formerly, the indexes had been weighted by the value of trade in 1980.) In addition, the indexes were recalculated from 1985 forward using the new weights. The Bureau also publishes these series by Standard Industrial Classification (SIC), as determined by the U.S. Office of Management and Budget, and end-use classifications as developed by the U.S. Department of Commerce's Bureau of Economic Analysis (BEA).
2 These results are based on the International Price Program's nominal average exchange rate indexes for all imports and all exports. The average exchange rate indexes measure the change in the price of trade-weighted baskets of currencies against the dollar and are designed to match the export and import price index series published by BLS at the 2-digit, 1-digit, all-export, and all-import levels as defined by the Standard International Trade Classification, Rev. 11 system.
Import and export prices gain ease in 1989.Jun. 1990.
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