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The Role of BLS Import and Export Price Indexes in the

Real GDP

Guadalupe CerritosEconomist

International Price Program Discussion SeriesJune 24, 2016

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What is IPP? Where does IPP’s source data come from? What is so special about IPP’s indexes? How are IPP’s indexes used? What is GDP? How to deflate?

Agenda

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So, what is IPP?

The International Price Program’s (IPP) indexes measure the average change in export and import prices

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So, what is IPP?

IPP’s indexes measure the average change in export and import prices

43 years of IPP…

1973 1974 1982 1993 2016First annual

indexesFirst quarterly

indexesIndexes

declared PFEIsAll indexes monthly

>1,000 monthly indexes

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Who provides prices to IPP?

Survey respondentsSecondary source data

providers

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What makes IPP’s indexes unique?

No similar statistic exists They adapt to the changing economyNew mix of itemsRevised item weights

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What agencies help IPP’s indexes adapt?

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How IPP’s indexes adapt

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How IPP’s indexes adapt (imports)

Import transaction data

Edited import transaction data

Formattedimport data

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How IPP’s indexes adapt (exports)

Export transaction data

Transaction data on imports from the U.S. (i.e.

U.S. exports to Canada)

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How are IPP’s data used?

Used byPolicy makersPrivate businessesAcademiaGovernment statistical community

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What is GDP?

Measures output of final goods and services

Net Exports

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Net Exports and GDP

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Total trade and GDP

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Deflation: why is it important?

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Deflation: why is it important?

Corn Belt

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Deflation: why is it important?

August 2012

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Deflation: why is it important?

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Deflation: why is it important?

𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑑𝑑𝐸𝐸𝑑𝑑𝑑𝑑𝑑𝑑𝐸𝐸 𝑣𝑣𝑑𝑑𝑑𝑑𝑣𝑣𝑣𝑣 = 𝐸𝐸𝐸𝐸𝑝𝑝𝑝𝑝𝑣𝑣 × 𝑞𝑞𝑣𝑣𝑑𝑑𝑞𝑞𝐸𝐸𝑝𝑝𝐸𝐸𝑞𝑞

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Deflation: why is it important?

𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑑𝑑𝐸𝐸𝑑𝑑𝑑𝑑𝑑𝑑𝐸𝐸 𝑣𝑣𝑑𝑑𝑑𝑑𝑣𝑣𝑣𝑣 = 𝐸𝐸𝐸𝐸𝑝𝑝𝑝𝑝𝑣𝑣 × 𝑞𝑞𝑣𝑣𝑑𝑑𝑞𝑞𝐸𝐸𝑝𝑝𝐸𝐸𝑞𝑞

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Deflation: why is it important?

𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑑𝑑𝐸𝐸𝑑𝑑𝑑𝑑𝑑𝑑𝐸𝐸 𝑣𝑣𝑑𝑑𝑑𝑑𝑣𝑣𝑣𝑣 = 𝐸𝐸𝐸𝐸𝑝𝑝𝑝𝑝𝑣𝑣 × 𝑞𝑞𝑣𝑣𝑑𝑑𝑞𝑞𝐸𝐸𝑝𝑝𝐸𝐸𝑞𝑞

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Deflation: how to do it

1. Start with the nominal series

Corn exports, January-December 2012

Month

Nominal Corn Exports($ millions)

Jan 1,081Feb 1,054Mar 1,094Apr 1,086May 1,044Jun 926Jul 809Aug 733Sep 902Oct 667Nov 584Dec 558

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Deflation: how to do it

1. Start with the nominal series

2. Take the price index and rebase it

Corn exports, January-December 2012

Month

Nominal Corn Exports($ millions)

Price Index

Rebased Price Index

Jan 1,081 295.0 100.0Feb 1,054 294.1 99.7Mar 1,094 301.6 102.2Apr 1,086 302.7 102.6May 1,044 302.4 102.5Jun 926 277.1 93.9Jul 809 330.4 112.0Aug 733 367.1 124.4Sep 902 359.7 121.9Oct 667 349.7 118.5Nov 584 346.1 117.3Dec 558 351.9 119.3

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Deflation: how to do it

1. Start with the nominal series

2. Take the price index and rebase it

3. 𝑅𝑅𝑣𝑣𝑑𝑑𝑑𝑑 =𝑁𝑁𝐸𝐸𝑁𝑁𝑝𝑝𝑞𝑞𝑑𝑑𝑑𝑑

𝑅𝑅𝑣𝑣𝑅𝑅𝑑𝑑𝑅𝑅𝑣𝑣𝑑𝑑 𝐸𝐸𝐸𝐸𝑝𝑝𝑝𝑝𝑣𝑣 𝑝𝑝𝑞𝑞𝑑𝑑𝑣𝑣𝐸𝐸× 100

Corn exports, January-December 2012

Month

Nominal Corn Exports($ millions)

Price Index

Rebased Price Index

Real Corn Exports ($ millions)

Jan 1,081 295.0 100.0 1,081Feb 1,054 294.1 99.7 1,058Mar 1,094 301.6 102.2 1,070Apr 1,086 302.7 102.6 1,059May 1,044 302.4 102.5 1,019Jun 926 277.1 93.9 985Jul 809 330.4 112.0 722Aug 733 367.1 124.4 589Sep 902 359.7 121.9 740Oct 667 349.7 118.5 563Nov 584 346.1 117.3 498Dec 558 351.9 119.3 468

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Deflation: GDP and IPP, Example 1

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Deflation: GDP and IPP, Example 1

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Deflation: GDP and IPP, Example 1

𝑅𝑅𝑣𝑣𝑑𝑑𝑑𝑑 =𝑁𝑁𝐸𝐸𝑁𝑁𝑝𝑝𝑞𝑞𝑑𝑑𝑑𝑑

𝑅𝑅𝑣𝑣𝑅𝑅𝑑𝑑𝑅𝑅𝑣𝑣𝑑𝑑 𝐸𝐸𝐸𝐸𝑝𝑝𝑝𝑝𝑣𝑣 𝑝𝑝𝑞𝑞𝑑𝑑𝑣𝑣𝐸𝐸× 100

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Deflation: GDP and IPP, Example 1

𝑅𝑅𝑣𝑣𝑑𝑑𝑑𝑑 =146.6

127.869× 100 = 114.6

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Deflation: GDP and IPP, Example 1

𝑅𝑅𝑣𝑣𝑑𝑑𝑑𝑑 =146.6

127.869× 100 = 114.6

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Deflation: GDP and IPP, Example 2

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Deflation: GDP and IPP, Example 2

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Deflation: GDP and IPP, Example 2

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Deflation: GDP and IPP, Example 2

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Deflation: GDP and IPP, Example 2

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Deflation: GDP and IPP, Example 2

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Deflation: GDP and IPP, Example 2

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Deflation: GDP and IPP, Example 2NIPA table

4.2.4.

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Conclusion

What have we learned today? What to take away?

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Questions…

Contact Information

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Guadalupe CerritosEconomist

Office of the Commissionerwww.bls.gov

202-691-7090cerritos.guadalupe@bls.gov