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April, 1987, Vol. 110, No. 4

Import price declines in 1986
reflected reduced oil prices

Elizabeth Gibbons and Gerald F. Halpin

Prices of goods imported into the United States in 1986 were influenced primarily by three divergent trends. First, prices of imports originating largely in industrialized countries rose significantly as the currencies of those countries continued to appreciate against the dollar. Second, prices of goods which are produced by the newly industrialized countries and developing countries were more stable as those countries' currencies did not appreciate substantially against the dollar. However, both of these trends were outweighed by the third trend, a large decline in the price of crude oil, which caused an overall decrease of 8.7 percent in prices of all commodities imported.  This was the fourth consecutive annual decline of the import index. If fuels are excluded, however, import prices rose 8.4 percent. (See chart 1.)

The dollar's decline against currencies of the United States' major industrialized trading partners began in the first quarter of 1985. The decline accelerated in September 1985 because the United States and four other industrialized countries agreed to intervene in foreign exchange markets to weaken the dollar. Between its peak in the first quarter of 1985 and the fourth quarter of 1986, the dollar declined approximately 60 percent against the Japanese yen and 63 percent against the West German mark. (See chart 2.) By contrast, the dollar remained comparatively stable against currencies of other major trading partners, such as the Canadian dollar, against which it appreciated 2 percent, as well as the Taiwanese dollar and the south Korean won, which are tied to the dollar¹.

Import price decreases were recorded for fuels and related products, which plunged 51.5 percent, and chemicals, which fell 1.1 percent. Overall, increases were recorded in indexes for most major product areas. The index for machinery and transport equipment rose 12.0 percent, while the miscellaneous manufactured products index moved up 8.7 percent.

This excerpt is from an article published in the April 1987 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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1 See "Foreign Exchange Rates," Federal Reserve Statistical Release H.10(512).  Figures given are based on monthly average for February 1985 and November 1986.

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