Current Price Topics

China’s Exchange Rate

Policy Reflected in U.S. 

Import Prices

1

Import and Export Prices: Second Quarter 2010

U.S. Bureau of Labor Statistics August 2010 Volume 1, Number 5

On June 19, 2010, China’s central bank announced that it would allow the renminbi, 

or yuan, as it is widely known, to float more 

freely against the U.S. dollar. As of July 9, the 

value of the yuan hit a new high in intra-day 

trading, but has appreciated less than 1 percent against the dollar. However, because of 

the influence this policy shift could have on 

the price of goods traded between the two 

countries, some analysts expect continued 

yuan appreciation to favorably affect the U.S. 

trade deficit with China.1

The competitiveness of U.S. imports and 

exports is affected, in part, by the effect of 

foreign currency fluctuations on the relative 

price of goods. If, for example, the yuan were 

permitted to float freely in the market and 

strengthened against the dollar, as it did during China’s last period of currency float, then 

presumably the price of its exports would rise 

in relation to goods produced in the United 

States. Similarly, a stronger yuan would make 

U.S. goods less expensive for China to import, 

and thus demand for U.S. exports could rise.

To help track the yuan exchange rate’s impact 

on trade, the Bureau of Labor Statistics (BLS) 

releases a price index, known as the China 

Locality of Origin (LOO) index that shows the 

average price movement for goods imported 

from China each month. Similar to the BLS 

monthly import and export price indexes 

(MXP), the China LOO price index measures 

price inflation for products imported into the 

United States in U.S. dollar terms.2

Since the inception of the China LOO price 

index in December 2003, the prices of goods 

imported from China have been virtually 

unchanged, compared with a 30.2-percent increase for all imports. However, a closer examination of the BLS China LOO price series from 

the December 2003–June 2010 period illustrates a more interesting picture of economic 

events and exchange rate policy shifts taken 

by China’s government over the same period. 

The China LOO price index declined 2.6 percent from December 2003 to March 2007. (See 

chart 1.) During much of this period, China 

followed a policy of exchange rate stability in 

which its currency was informally pegged to 

the U.S. dollar at a central parity rate above or 

below which the yuan could fluctuate by 0.5 

percent. This stable exchange rate effectively 

contributed to the lower cost of imports from 

China into the United States. In comparison, 

the index for all imported goods increased by 

18.9 percent over the same period.

In July 2005, China changed its policy and 

allowed the yuan to gradually appreciate in 

value. China had previously been maintaining 
6.5

6.9

7.3

7.7

8.1

8.5

95.0

100.0

105.0

Dec 

2003

Jun 

2004

Dec 

2004

Jun 

2005

Dec 

2005

Jun 

2006

Dec 

2006

Jun 

2007

Dec 

2007

Jun 

2008

Dec 

2008

Jun 

2009

Dec 

2009

Jun 

2010

Yuan per dollar

China Locality of Origin Index China yuan / U.S. dollar exchange rate

SOURCES: Dollar exchange rate from Federal Reserve Bank and U.S. Bureau of Labor Statistics

Index value Dec 2003 = 100

Chart 1. China Locality of Origin price index and China yuan / U.S. 

dollar exchange rate, December 2003–June 2010

2

the yuan at approximately 8.28 yuan to the 

dollar by printing yuan to purchase dollardenominated assets. However, in 2005, China 

instituted a managed float of the yuan against 

a basket of foreign currencies. Subsequently, the dollar depreciated nearly 17 percent 

against the yuan from July 2005 to July 

2008.

From July 2005 to the spring of 2007, the 

China LOO tracked the yuan’s movement 

in the market. However, in June 2007 the 

China LOO price index began an unprecedented climb coinciding roughly with the 

onset of the global economic and financial 

crisis.3

 From June 2007 until August 2008, 

the price of goods from China increased 

5.8 percent. However, in the summer of 

2008, when China froze the yuan again in 

response to this crisis, the China LOO price 

index showed an immediate and dramatic 

downturn, declining 3.3 percent over the 

next 8 months before stabilizing from April 

2009 to the present.

While exchange rates can affect prices of 

goods traded between countries, not all 

of the change in currency will be evident 

through import prices. For example, the 

BLS Japan LOO price index displays a useful 

comparison of import price change from a 

different U.S. major trade partner in Asia. 

(See chart 2.) Similar to China, Japan also 

predominantly exports finished goods, 

whose prices tend to be less volatile than 

those of raw materials. The import prices 

from Japan have increased by only 3.4 

percent compared with an average 30.2 

 C U R R E N T P R I C E T O P I C S
85.0

95.0

105.0

115.0

125.0

95.0

100.0

105.0

Dec 

2003

Jun 

2004

Dec 

2004

Jun 

2005

Dec 

2005

Jun 

2006

Dec 

2006

Jun 

2007

Dec 

2007

Jun 

2008

Dec 

2008

Jun 

2009

Dec 

2009

Jun 

2010

Yen per dollar

Japan Locality of Origin Index Japanese yen / U.S. dollar exchange rate

SOURCES: Dollar exchange rate from Federal Reserve Bank and U.S. Bureau of Labor Statistics

Index value Dec 2003 = 100

Chart 2. Japan Locality of Origin price index and Japanese yen / 

U.S. dollar exchange rate, December 2003–June 2010

3

percent increase for all imports since December 2003. However, because the Japanese yen’s exchange rate is determined 

in financial markets, the currency floats 

freely against the U.S. dollar, and thus other 

factors can play a more important role in 

determining the prices of Japan’s exported 

goods. As a result, the yen’s value varies 

widely against the dollar, yet the Japan 

LOO price index fluctuates in a less dramatic fashion than overall import prices. 

From December 2003 to the onset of the 

global financial crisis, the Japan LOO price 

index increased by less than 1 percent. 

Over this period, however, the yen’s value 

varied widely in both month-to-month 

and in absolute terms. During the global 

financial crisis, Japan worked in coordination with the U.S. Federal Reserve and 

other international central banks in August 

2007 to inject 1 trillion yen into the financial markets to increase available liquidity. 

This caused an immediate strengthening 

of the yen against the dollar. After several 

fluctuations in the currency’s value, the yen 

ultimately appreciated 25 percent from its 

high in June 2007 to June 2010. However, 

prices of imports from Japan increased only 

4 percent over this period. 

China’s recent exchange rate policy decision 

will undoubtedly be seen reflected in the import prices measured by the China LOO price 

index in the coming months. However, other 

factors, such as labor costs, input prices, and 

China’s export product mix will also have an 

impact on the index. In fact, as China’s industry 

base diversifies away from the production of 

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4

low-tech consumer goods towards a broader 

spectrum of goods and services, evaluating the 

effect of this shift in a more detailed China LOO 

price index in the future would be valuable.

In addition to the China and Japan LOO price indexes, BLS publishes 12 other LOO price indexes, 6 of which are further broken out by manufactured and nonmanufactured products.4

These unique indexes contribute to a better 

measurement of price competitiveness of U.S. 

imports by global region. 

Import Prices

Import prices fell 0.7 percent in the second 

quarter of 2010 after rising 1.5 percent for 

the quarter ended in March. The decline 

between March and June was the first quarterly downturn since the first quarter of 2009. 

The decline in the second quarter was led by 

a 5.5-percent drop in fuel prices, which more 

than offset a 0.5-percent increase in nonfuel 

prices.

Fuel Import Prices

Fuel prices started out the second quarter of 

2010 by rising 2.6 percent in April, but fell 4.1 

percent and 4.0 percent, respectively, in May 

and June to finish the quarter down 5.5 percent. The downturn for the March–June quarter broke the trend of increasing fuel prices 

dating back to a 55.6-percent plunge during 

the final quarter of 2008. Both petroleum and 

natural gas prices fell during the second quarter, with the price index for petroleum imports 

accounting for approximately 85 percent of 

the overall drop. Petroleum prices declined 

5.1 percent for the quarter while natural gas 

prices decreased 16.0 percent.

The major factor for the drop in petroleum 

prices during May and June has been the 

European debt crisis that resulted in the Euro 

falling 10.3 percent against the U.S. dollar 

between April 30 and June 8. Petroleum is 

priced in U.S. dollars, so a rise in the value of 

the dollar made petroleum more expensive in 

foreign currency terms and subsequently led 

to a drop in the dollar price.5

 In addition, petroleum demand in Europe also continued to 

lag. Despite the fact demand has been weak 

in Europe, global demand did increase, according to a revised report submitted on June 

10 by the International Energy Agency, with 

most of the demand growth coming from 

Asia and North America.6

 Natural gas prices 

also fell in the second quarter, largely due to 

reduced demand between the winter heating 

and summer cooling seasons.

Nonfuel Import Prices

In contrast to fuel prices, nonfuel import 

prices rose in the second quarter of 2010, 

increasing 0.5 percent following a 0.6-percent advance during the previous quarter. As 

seen in chart 3, the price index for industrial 

supplies and materials accounted for most of 

the increase. Higher prices for foods, feeds, 

and beverages and automotive vehicles also 

contributed some to the overall price increase, 

Current Price Trends

Quarterly

Price Highlights

 C U R R E N T P R I C E T O P I C S
-0.07

0.02

-0.03

0.61

0.04

-0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8

Consumer goods, 

excluding automotives

Automotive vehicles

Capital goods

Industrial supplies and

materials, excluding fuel

Foods, feeds,

and beverages

Percent change contribution

Commodity groupings

SOURCE: U.S. Bureau of Labor Statistics

NOTE: Due to rounding, figures do not add to total.

Chart 3. Major contributors to the 0.6-percent increase in 

import prices excluding fuel, second quarter 2010 

5

but those advances were more than offset by 

falling prices for consumer goods and capital 

goods.

Prices for nonfuel industrial supplies and 

materials rose 3.4 percent from March to June, 

led by a 5.9-percent increase in unfinished 

metals prices. Despite declining during the 

final month of the second quarter, prices for 

unfinished metals have trended up since 

the first quarter of 2009. Major contributors 

to the increase in metals prices included a 

10.7-percent rise in iron and steel mill prices 

and an 11.6-percent advance in steelmaking 

materials. The price increase in steelmaking 

materials resulted from an increase in demand 

stemming from greater steel production in 

China.7

The price index for foods, feeds, and beverages increased 0.7 percent during the second 

quarter; a 6.6-percent increase in fish and 

shellfish prices drove the advance. The Gulf oil 

spill has led to a reduction in seafood, most 

notably shrimp and oysters, available out of 

the Gulf of Mexico, thus increasing the demand for imported seafood. Typically, imports 

account for approximately 83 percent of the 

seafood consumed in the United States.8

Finished goods prices were mostly down during the March–June quarter, with consumer 

goods prices and prices of capital goods falling 0.3 percent and 0.1 percent, respectively, 

even while the price index for automotive 

vehicles ticked up 0.1 percent. The rising value 

of the U.S. dollar, which increased 4.9 percent 

 C U R R E N T P R I C E T R E N D S
6

against a trade-weighted basket of major currencies from March 1 to June 1, put downward 

pressure on imported finished goods prices 

during the second quarter. An increase in the 

value of the U.S. dollar makes import prices 

cheaper.9

Export Prices

The price index for U.S. exports rose 1.4 percent for the quarter ended in June, following 

a similar advance for the first quarter of 2010. 

The second quarter increase continues an upward trend dating back to the second quarter 

of 2009. Rising prices for both nonagricultural 

exports and agricultural exports each contributed to the overall increase in the second 

quarter. A 1.5-percent advance in nonagricultural prices accounted for approximately 

94 percent of the rise in export prices, while 

agricultural prices rose 1.0 percent.

Agricultural Export Prices

The price index for agricultural exports rose 

1.0 percent for the quarter ended in June 

following a 0.9-percent decline for the first 

quarter of 2010. A 7.7-percent increase in 

meat prices led the advance, although higher 

prices for exported fruit, cotton, and nuts 

also contributed to the overall increase. Meat 

prices were led by higher prices for pork as 

hog slaughter rates in the United States fell 

the first quarter of the year and weights were 

lower than expected leading to higher prices. 

Although both supply factors improved in 

the second quarter, pork prices continued to 

rise.10 Corn and wheat prices fell 7.2 percent 

and 7.7 percent, respectively, in the second 

quarter, partially offsetting the increasing 

pork prices.

Nonagricultural Export Prices

Nonagricultural export prices rose 1.5 percent in the second quarter following a similar 

advance between December 2009 and March 

2010. Chart 4 shows the increase was almost 

entirely driven by higher prices for nonagricultural industrial supplies and materials. 

In contrast, finished goods prices, including 

capital goods, consumer goods, and automobiles, were down overall and partially offset 

the rising prices for nonagricultural industrial 

supplies and materials. Falling capital goods 

prices were the primary contributor to the 

drop in finished goods prices.

Nonagricultural industrial supplies and materials prices rose 5.1 percent for the quarter 

ended in June, the largest quarterly increase 

since a 7.2-percent increase for the first 

quarter of 2008. The 2010 second quarter 

advance was led by a 15.2-percent increase 

in fuel prices. Despite a 2.8-percent decrease 

in export petroleum prices, a 115.2-percent 

jump in coal prices drove overall fuel prices 

up for the quarter. Coal prices have risen 

because of strong demand from China; that 

country’s coal imports were up 165 percent 

on a yearly basis as of March 2010.11

Capital goods prices fell 0.4 percent in the 

second quarter, reversing the 0.5-percent 

increase for the previous quarter. The largest 

contributor to the decrease was a 1.6-percent decline for the price index for comput-

 C U R R E N T P R I C E T R E N D S
 

 7

ers, peripherals, and semiconductors. Prices 

for automotive vehicles also fell in the second 

quarter, edging down 0.1 percent. The exception to the declining price trend for export 

finished goods for the quarter was consumer 

goods, for which prices rose 0.2 percent be-

 C U R R E N T P R I C E T R E N D S

tween March and June. 

For further information, please contact Rozi 

Ulics at (202) 691-7114 or by email at Ulics.

Rozi@bls.gov or Dave Mead at (202) 691-

7101 or by email at Mead.Dave@bls.gov.

Notes

1

 See “China’s central bank says it’s ready to free up currency, making trade partners happy,” The Washington Post, 

June 20, 2010.

2

 The average exchange rate index that BLS uses to convert import prices for goods priced in a foreign currency into 

U.S. dollar terms is lagged 1 month. The BLS reference period for the MXP and LOO price indexes is the first of the 

month. Therefore, the exchange rate used for the currency conversion is the average exchange rate for the month prior 

to the reference period.

3

 See “Timeline: Credit crunch to downturn,” BBC News, Aug. 7, 2009.

4

 For more information on these publications see http://www.bls.gov/web/ximpim/coor.htm.

5

 See “Oil falls to near $76 a barrel as traders eye euro,” The Associated Press, May 11, 2010; and “Oil prices settle 

near $77 as stocks, euro rise,” The Associated Press, June 15, 2010.

6 Oil Market Report (International Energy Agency, 10 June, 2010). Also, for more information about the International 

Energy Agency, see http://www.iea.org/about/index.asp.

7

 See “Producers set to push up steel prices higher,” Chinadaily.com.cn, Apr. 15, 2010.

0.02

-0.02

-0.15

1.65

-0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0

Consumer goods, 

excluding automotives

Automotive vehicles

Capital goods

Nonagricultural industrial 

supplies and materials

Percent change contribution

Commodity groupings

SOURCE: U.S. Bureau of Labor Statistics

NOTE: Due to rounding, figures do not add to total. 

Chart 4. Major contributors to the 1.5-percent increase in export 

prices excluding agriculture, second quarter 2010 
8

8

 See “Jumbo problems for shrimp amid Gulf oil spill; wholesale prices climb,” The Associated Press, June 15, 2010; 

and “Impact on seafood prices is limited,” The Wall Street Journal, June 21, 2010.

9 Focus on Prices and Spending; Import and Export Prices: First quarter 2010 (U.S. Bureau of Labor Statistics, May 2010, Volume 1, Number 1).

10 World Agricultural Supply and Demand Estimates (U.S. Department of Agriculture, Mar.10, 2010) and Quarterly Hogs and 

Pigs Report(U.S. Department of Agriculture, June 25, 2010).

11 See “China ignites global coal market,” The Wall Street Journal, May 4, 2010.

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