Deflators for international trade

Statistics Netherlands has been publishing monthly deflators for total imports and exports of goods for two years now. Deflators are used to determine a volume change on the basis of a value change. The producers’ price index (PPI) can also be used as a deflator for imports and exports. These two indicators for price developments in international trade result in different values for exports in particular. This article gives a brief description of the methods of the two statistics, and then examines the differences.

International trade deflators

On the basis of the monthly international trade statistics, Statistics Netherlands publishes the value of imports and exports of goods (including re-exports). Value changes are made up of a price and a volume component. In the system of national accounts, total imports and exports of goods are confronted with other supply of and demand for goods. The confrontation centres on the volume developments of goods and services, as these are the most relevant from a business cycle perspective. To get from the value to the volume, deflators are needed. Deflators have long been published in the quarterly national accounts, but for the last two years they have also been available on a monthly basis.

To deflate monthly international trade figures, among other things prices of sales abroad and imports from the producers’ price index (PPI) are used. For each reporting period, the values of the monthly international trade statistics are deflated at a detailed level with the aid of the PPI. For re-exports, import prices are used. The detailed figures are combined to give higher aggregates of commodity groups.

The commodity groups in turn are combined, ultimately resulting in deflators for total imports and exports. The weighting scheme used for the aggregation is based on the value figures of imports and exports from the monthly international trade statistics and the quarterly national accounts. The weights relate to the reporting periods in accordance with the Paasche method.

Producers’ price index  

The producers’ price index (PPI) measures the average price of goods produced in and imported into the Netherlands. It is calculated to provide the national accounts with price information to deflate the values of goods. For the measurement of price changes, domestic factory gate prices and imports and export prices are surveyed.

The series on export prices covers prices of goods produced in the Netherlands which are sold to customers abroad. Prices of re-exported goods are not included. The series on import prices includes all imported goods , regardless of whether they are imported by import companies, traders or manufacturing companies. Goods which leave the country again more or less unchanged (re-exports) are not included. This means the figures do not cover total imports and exports of goods, while the international trade deflators do. As a result, the influence of petroleum products and natural gas within the PPI is larger than in the international trade deflators. Price developments for these products may fluctuate strongly and as a result the PPI can also fluctuate strongly. 

The weighting scheme used for the PPI is currently based on the supply and use tables of the national accounts 2000. The weights remain fixed until the next base shift takes place, usually once every five years. The PPI is a Laspeyres chain index. The results of the PPI are provisional for a period of five months.

Below a brief summary is given of the differences between the two statistics.

	Deflators international trade	Producers' price index
Type of index	Paasche (current reporting period)	Laspeyres chain index (fixed base year)
Re-exports	Yes	No
Coverage	All goods	Manufactured goods (industry)
Publication level	Total for imports and exports	Total with component series
Influence of petroleum and natural gas	Minor	Strong

Differences between the two indicators

With respect to imports both indicators show the same results for prices in foreign trade. 

Imports: deflator for international trade and producers’ price index

For exports, on the other hand, there are clear differences between the two indicators. The deflators of international trade show a more moderate development than the PPI. This is mainly caused by re-exports. These comprise relatively many goods, such as office machines and computers, audio, video and telecom equipment whose prices rise only very slightly, or sometimes even decrease. 

By contrast, in the PPI petroleum has a much bigger effect than in the international trade deflators.  Substantial changes in the price of petroleum therefore have a large influence on price changes according to the PPI. This was particularly the case from 2004 to the first half of 2006, when oil prices rose sharply. From the period June 2001 to June 2002 oil prices had fallen, and as a result the development of the PPI fell below those of the deflators.