Import Price Rise in 2005 Due to Continued High Energy Prices: The Rise in Energy Prices Influenced the Overall Increase for Import Prices and the Rise in Soybean Prices Led the Increase in Agricultural Export Prices; Hurricanes Katrina and Rita Caused Short-Term Shocks to Prices

Bogen, Jeffrey, Monthly Labor Review

Import prices rose 8.0 percent in 2005--the fastest pace since 1987 and the fourth consecutive annual increase--following an increase of 6.7 percent a year earlier. Excluding energy goods, import prices rose a comparatively modest 1.1 percent following a 3.0-percent increase a year earlier. Export prices rose 2.8 percent, also the fourth consecutive annual increase, but a smaller increase than the 4.0-percent increase in 2004. Excluding agricultural products, export prices rose 2.6 percent following a 5.0-percent increase a year earlier.

Although hurricanes Katrina and Rita caused price surges for products ranging from building materials to petroleum-based chemicals, these shocks appear to have been only short term. (1) The more noteworthy story in 2005, however, was the continuation of rising prices for energy and raw materials. Import energy prices, which rose 43.5 percent, had a substantial impact on overall import prices as energy products made up 13 percent of all imports. (2)

Exchange rates also affected import prices and were reflected in the Locality of Origin price indexes. These price indexes measure price fluctuations of imported products aggregated by the country or region from which they were imported. This aggregation method allows analysts to study the effects of exchange rates on import prices. The European Union (EU) price index of manufactured goods and the Japanese price index, which ended 2005 up 1.8 percent and down 0.7 percent, respectively, increased early in the year due to a comparatively weak dollar, but declined in the second half of the year as the dollar strengthened. By the end of the year, the dollar had appreciated 10.2 percent against the euro and 13.1 percent against the Japanese yen. (3) In contrast, the U.S. dollar depreciated 1.3 percent against the Canadian dollar in 2005. The strong Canadian dollar, along with higher energy prices, contributed to the 11.1-percent increase in the Canadian price index. (4)

This article contains analysis of the annual data from the Bureau of Labor Statistics International Price Program (IPP). It focuses on import and export price trends for all goods. (5) This article also provides some analysis of the price indexes for transportation services between establishments in the United States and those in other countries.

Other price measures

The IPP, along with the Consumer Price Index (CPI), which measures monthly price changes for consumer goods and services, and the Producer Price Index (PPI), which measures monthly fluctuations in prices received by domestic producers, form the three major BLS price-measuring programs.

Similar to the trends for the Import and Export Price Indexes, the Consumer Price Index for All Urban Consumers (CPI-U) and PPI increased in 2005. The increases for both the CPI-U and PPI, like those for the Import and Export Price Indexes, were heavily influenced by sharply higher energy prices. When energy prices are excluded from all four price indexes, the increases were comparatively modest and the indexes remained relatively stable, although the Import and Export Price Indexes varied more in magnitude during 2005 than the CPI-U and PPI. The price indexes, with the exception of the CPI-U, declined in the last quarter. (See chart 1.)

[GRAPHIC 1 OMITTED]

The energy component of the CPI-U rose 17.1 percent in 2005 compared with an increase of 16.6 percent a year earlier. When energy prices are excluded, the CPI-U increased 2.2 percent, which was identical to the increase recorded a year earlier. Overall, the CPI-U rose 3.4 percent following an increase of 3.3 percent in 2004.

Energy prices tracked by the PPI for finished goods increased 23.9 percent following a smaller increase of 13.4 percent in 2004. Excluding energy, prices for finished goods at the producer level rose 1.5 percent after rising 2.5 percent in 2004. Overall, the PPI for finished goods rose 5.4 percent after a 4.2-percent increase in 2004.

Import price trends

Energy. Import energy prices rose 43.5 percent following a 31.5-percent increase in 2004 and had a significant influence on the overall increase for import prices in 2005. (See table 1.) Prices for energy products rose throughout most of the year, but weakened demand caused prices to decline in the last quarter.

Supply concerns permeated the energy markets early in the year. Analysts cited low crude inventories and the lack of spare production capacity in oil exporting countries. (6) Though crude oil inventories declined domestically on a weekly basis during that period, they were still higher compared with inventory levels for the same period in 2004. (7) Damage to production facilities from the 2004-05 hurricane season, Hurricane Ivan in particular, hampered crude oil production in the southern United States. As a result, the equivalent of 8 percent of daily production remained closed for repair during January 2005. (8)

Supply concerns for refined products continued throughout the spring due to scheduled maintenance at U.S. refineries, which kept some off line longer than anticipated. (9)

Anticipation of a continued surge in demand from China also contributed to higher energy prices early in the year. Petroleum demand in China spiked in 2004 due to widespread blackouts that forced many factories to supply their own electricity using diesel-powered generators. (10) Instead of continuing to increase, China's growth rate of petroleum demand was nearly cut in half after its domestic electricity situation stabilized. (See chart 2 on page 6.) Even with demand from China slowing, global demand for petroleum remained strong early …

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Publication information: Article title: Import Price Rise in 2005 Due to Continued High Energy Prices: The Rise in Energy Prices Influenced the Overall Increase for Import Prices and the Rise in Soybean Prices Led the Increase in Agricultural Export Prices; Hurricanes Katrina and Rita Caused Short-Term Shocks to Prices. Contributors: Bogen, Jeffrey - Author. Journal title: Monthly Labor Review. Volume: 129. Issue: 11 Publication date: November 2006. Page number: 3+. © 1999 U.S. Bureau of Labor Statistics. COPYRIGHT 2006 Gale Group.

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