Definition of import and export price indices (MXP)


What are the Import and Export Price Indices (MXP)?

The Import and Export Price Indices (MXP) measure changes in the prices of non-military goods and services entering and leaving the United States.

MXPs are published for many different types of commodities, goods and services industries, origin location and destination location. Indexes are updated monthly and are produced by the International Prices Program (IPP) of the Bureau of Labor Statistics (BLS).

Key points to remember

  • The Import and Export Price Indices (MXP) measure changes in the prices of goods or services purchased abroad by U.S. residents (imports) and sold to foreign buyers by U.S. residents (exports).
  • Indexes are updated monthly by the International Prices Program (IPP) of the Bureau of Labor Statistics (BLS).
  • The data is used to deflate government trade statistics, predict future inflation and price changes, set fiscal and monetary policy, measure exchange rates, negotiate trade contracts, and identify specific industry trends and world prices.
  • Investors pay close attention to price trends because inflation is generally bad for bond and stock markets.

How the Import and Export Price Indices (MXP) Work

MXPs are created by compiling the prices of goods purchased in the United States but produced outside the country (imports) and the prices of goods purchased outside the country but produced in the United States (exports). The data is collected from the declarations of the exporters and the documents of entry of the imported goods.

The BLS defines its indices as “containing data on the evolution of prices of non-military goods and services traded between the United States and the rest of the world.” These measures, he adds, “show how the prices of a basket of goods and services in international trade change from period to period.

Not all U.S. international trade is conducted in United States dollars (USD). The BLS reports that 6% of imports and exports currently studied are denominated in foreign currencies. For its indices, all prices are converted into local currency, using an average exchange rate for the month preceding the pricing month.

Import and export price changes from the previous month are usually published in the middle of the following month.

How the Import and Export Price Indices (MXP) are used

MXP serves several purposes. Among other things, they can be used for:

  • Deflate government trade statistics: Since trade statistics are reported and aggregated in nominal dollar terms, analysts can use MXPs to convert them to actual values.
  • Predict future prices and domestic inflation: The prices of some consumer goods may depend in part on the cost of imported goods or raw materials used in their domestic production.
  • Help the Federal Reserve Board (FRB) decide on fiscal and monetary policies to be implemented: Monitoring trade flows and the expected future development of domestic inflation are both important policy considerations.
  • Measure exchange rates and negotiate commercial contracts: MXPs can be used to estimate or set exchange rates and exchange rate escalation factors for trade deals and contracts.
  • Identify specific industry trends and global prices: MXPs for different industries, products or countries of origin can be used to help identify trends in these different dimensions.

MXPs are one of the three primary measures of the price movement of goods and services in the US economy. The others are the consumer price index (CPI) and the producer price index (PPI).

Import and export price indices (MXP) and investment

MXPs can help identify price and inflation trends, which are important factors in investment markets and, as such, interesting for investors to watch.

Data from these indices often have a direct impact on bond markets. Indices are used to help measure the inflation of commodities that are traded globally. Bond prices often fall when import inflation becomes too high as it erodes the value of the initial investment.

Inflation can also hurt stock markets. As inflation rises, central banks sometimes raise interest rates to keep prices from rising. Higher interest rates make borrowing more expensive and encourage consumers to save. Often the result is falling stock prices.

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