Are producer prices good proxies for export prices? (EXCERPT), Monthly Labor Review Online, Oct. 1997

Are producer prices good proxies for export prices?

Bill Alterman

Accurate export (and import) price indexes have long been considered crucial for the construction and analysis of such critical economic data as measures of inflation-adjusted net exports, price elasticities of goods in world trade and estimates of the impact of exchange rate fluctuations on domestic inflation and U.S. "competitiveness." Historically, price indexes reflective of total output for U.S. companies, such as the Bureau’s producer price indexes (PPI), were frequently used as substitutes for export price indexes. In order to assess the similarity between these two series, the Bureau of Labor Statistics (BLS) recently undertook a project to compare price trends of the Bureau’s export price indexes (XPI) with producer price indexes.

The Producer Price Index is designed to measure price changes in a domestic industry’s total output, regardless of the destination of that output. The Export Price Index is designed to measure price changes of only those goods that are physically shipped out of the country. Thus, the export price index would appear, at first glance, to be a subset of the producer price index and arguably derivable from it. In general, nearly all of the companies, products, and prices that make up the universe of U.S. exporters also are found in the universe of U.S. domestic producers.¹ However, there are significant differences between the two indexes, including differences in the underlying concepts and in the operational methodology used to construct the indexes.

This excerpt is from an article published in the October 1997 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.

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Footnotes
¹ The export indexes do, however, include nonmanufacturers such as brokers and freight forwarders, which are not included in the PPI.

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