of exchange rate changes. The euro was fi rst 

introduced as an electronic currency in 1999 

and remained relatively fl at from that point until 2002. In 2002, banknotes and coinage were 

introduced and the euro began to appreciate in 

relation to the U.S. dollar. In response, import 

prices from Europe also increased. Conversely, 

subsequent dips in the euro’s value tended to 

pull the import price index down. 

From the onset of the European debt crisis 

that began with the Greek debt announcement in November 2009 to June 2010 when 

the value of the euro bottomed out versus the 

U.S. dollar, the euro depreciated 18-percent. 

However, chart 1 shows that import prices 

from the EU actually continued to rise slowly 

as the crisis began. There was a notable fl attening between February and May 2010, and 

the index turned slightly downward in June 

2010. 

So why wasn’t there a greater impact from the 

sharp drop in the value of the euro on import 

prices during the European debt crisis? One 

reason is that the impact on prices will depend, 

to some degree, on the perceived duration in 

the shift in exchange rates. Research has shown 

that as short-term fl uctuations of the exchange 

rate occur, companies are more likely to pass 

through only a small percentage of the currency 

change into the prices of their goods in order 

of exchange rate changes. The euro was fi rst 

introduced as an electronic currency in 1999 

and remained relatively fl at from that point until 2002. In 2002, banknotes and coinage were 

introduced and the euro began to appreciate in

The fallout from the recent European debt crisis 

leads to questions about its impact on exchange 

rates and the U.S. economy.1 On November 5, 

2009, the newly elected Greek administration 

announced that Greece’s budget defi cit would 

be more than double what was expected.2 This 

much larger budget estimate raised fears of 

Greek sovereign debt insolvency and sparked 

the beginning of the European debt crisis. 

The ensuing downgrades of Greece’s debt and 

similar doubts regarding Spain and Portugal’s 

solvency, which appeared during the fi rst half 

of 2010, also contributed to the 18-percent 

decline in the value of the euro versus the U.S. 

dollar from November 2009 to June 2010.3 An 

interesting question is, did this drop in the value 

of the euro have any impact on import prices 

to the United States from the European Union 

(EU)?

Historically, the movement of the euro against 

the U.S. dollar appears to aff ect the price of 

imported goods from the EU. The locality of 

origin (LOO) price index of imports from the 

EU published by the Bureau of Labor Statistics provides some evidence on the impact 

Current Price Topics

The Impact of the

European Debt Crisis

on U.S. Import Prices

1

Import and Export Prices: Third Quarter 2010

U.S. Bureau of Labor Statistics November 2010 Volume 1, Number 11
2

to preserve market share. However, if the shift 

in the exchange rate is thought to be of a more 

permanent duration, a higher pass-through rate 

is likely.4 Thus it is possible that as the euro 

rose and fell during the second half of 2009, 

European exporters did not foresee a permanent 

change in the exchange rate.

Another factor that can aff ect the short-term 

impact of a change in exchange rates is the 

percentage of goods that are priced in a foreign currency compared with the percentage 

priced in U.S. dollars. For goods priced in a foreign currency, the price has to be converted 

into U.S. dollar terms before the good is used 

in the calculation of indexes.5

 Because of this 

process, there is an immediate eff ect when 

there is a currency movement. For example, 

even if from one period to the next, the price 

of an item is unchanged in euro-denominated 

terms, if the euro appreciated 10 percent during that period, then after currency conversion, the dollar-equivalent price of the item 

will also register a 10-percent increase. In 

contrast, for goods priced in U.S. dollars, there 

is no immediate direct change from converting the price into another currency. There 

may, however, be a lagged response if over 

time a company changes the U.S. dollar price. 

As the value of the euro falls, the amount European companies that price their exports in 

U.S. dollars receive for their items increases in 

euro terms; thus fi rms may lower the price of 

their exports to the United States in order to 

capture more market share.6

 Firms, however, 

take time to adapt their prices to currency 

movements, which can result in a short-term 

stability of prices. A recent study showed that 

the pass-through rate of currency appreciation or depreciation on the price of a good is 

only about 25 percent for items priced in U.S. 

dollars. On the other hand, if an item is priced 

 CURRENT PRICE TOPICS

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

120

125

130

135

140

145

150

155

Index value 2000=100 Dollars per euro

Chart 1.European Union locality of origin index and U.S. dollar/euro exchange

rate June 2009–September 2010

1.10

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

110

115

120

125

130

135

140

145

150

155

J J A S OND J FMAM J J A S

2009 2010

Dollars per euro

European Union locality of origin index U.S. dollar per euro exchange rate

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

Index value 2000=100

Chart 1.European Union locality of origin index and U.S. dollar/euro exchange

rate June 2009–September 2010
3

in a foreign currency, the pass-through rate 

of an exchange rate change to the U.S. dollar 

price jumps to approximately 95 percent.7

The market basket for the price index of 

imports from the European Union is predominately priced in dollars, with only about 14 

percent priced in a foreign currency. Consequently, when looking at U.S. imports from 

Europe, regardless of the perceived duration 

of an exchange rate change, the tendency is 

for a change in the exchange rate to have a 

much greater impact on the European seller’s 

price than the U.S. buyer’s price. This may help 

explain why the drop in the value of the euro 

only had a comparatively small impact on the 

dollar price of imports from Europe in 2009 

and 2010.

What would the impact have been if a greater 

percentage of import prices from the EU had 

been priced in a foreign currency? Looking 

at the import price index for pulp and paper 

machinery provides some insight into that 

question. Pulp and paper machinery is primarily imported from Europe, and roughly 57 

percent of the items in the index are priced 

in a foreign currency. If the recent analysis 

holds, the drop in the value of the euro should 

have a greater impact on this index. In chart 2, 

the correlation between prices and the exchange rate of the euro versus the U.S. dollar 

is indeed closer, with the index declining 6.5 

percent from January 2010 to July 2010. This 

analysis raises an interesting point. If the U.S. 

dollar were to lose its traditional standing as 

a “world” currency, leading to more products 

being priced in foreign currency, then the 

impact on prices of a change in the value of 

the euro (or any other currency) versus the 

U.S. dollar might be greater over time. Recent 

discussions among OPEC countries to move 

 CURRENT PRICE TOPICS

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

1.60

120

125

130

135

140

145

150

155

160

Dollar per euro

Chart 2.Pulp and paper machinery index and U.S. dollar/euro exchange rate

Index value 2000=100

1.10

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

1.60

110

115

120

125

130

135

140

145

150

155

160

J J A S OND J FMAM J J A S

2009 2010

Dollar per euro

Pulp and paper machinery U.S. dollar per euro exchange rate

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

Chart 2.Pulp and paper machinery index and U.S. dollar/euro exchange rate

Index value 2000=100
away from pricing in U.S. dollars, as well as 

China’s recent questioning of the U.S. dollar as 

the world’s reserve currency, have created an 

uncertain future for the pricing of U.S. imports.

8 

Import prices

Import prices ticked up 0.2 percent in the 

third quarter of 2010 following a 0.9-percent decline for the previous 3-month 

period. The price index for overall imports 

has risen only 0.9 percent since the beginning of the year after rising 8.6 percent in 

2009. The increase from June to September 

was led by a 0.3-percent advance in nonfuel 

prices that more than offset a 0.4-percent 

drop in prices for fuel imports. 

Fuel import prices

Fuel prices fell for the second consecutive 

quarter between June and September, declining 0.4 percent after a 6.3-percent drop 

for the quarter ended in June. Prices for 

fuel began the third quarter up, rising 1.0 

percent and 1.7 percent, respectively, in July 

and August, but a 3.1-percent drop in September left the index down overall for the 

3-month period. Approximately half of the 

decline for the third quarter resulted from 

a 0.2-percent decline in petroleum prices. 

Natural gas prices and coal prices fell more 

sharply during the quarter, decreasing 2.7 

percent and 6.5 percent, respectively.

Petroleum prices rose in July and August 

partly as a result of a drop in the value of 

the U.S. dollar in June and July.9

 Petroleum 

prices turned down in September on concerns over demand and uncertainty in the 

market about the strength of the economic 

recovery in the United States and Europe. 

In addition, U.S. crude oil and petroleum 

product reserves hit their highest level since 

January 1983.10 Even China, where oil demand increased 3.3 percent on a 12-month 

basis in July, has seen a slowing in demand 

as the Chinese government has taken actions to slow the rate of economic growth in 

China in recent months.11

Nonfuel import prices

In contrast to fuel prices, nonfuel prices rose 

0.3 percent for the quarter ended in September, following 0.6-percent advances the previous two quarters. As shown in chart 3, higher 

foods, feeds, and beverages prices had the 

largest contribution to the overall advance in 

nonfuel prices. Rising prices for automotive 

vehicles, nonfuel industrial supplies and materials, and capital goods also factored into the 

increase in the price index for nonfuel imports. 

Prices for consumer goods were unchanged 

for the third quarter. 

Prices for foods, feeds, and beverages advanced 

3.2 percent in the third quarter, the largest 

quarterly increase since a 4.2-percent rise in 

the second quarter of 2008. The recent increase 

4

 CURRENT PRICE TRENDS

Current Price Trends

Quarterly Price Highlights
was primarily driven by a 21.7-percent jump 

in coff ee prices. Unfavorable weather in Brazil, Vietnam, and Columbia—the three largest 

producers—as well as pests and disease in the 

latter, have reduced the world supply of coff ee. 

Opening stocks for the 2010–11 year on October 

1 were at the lowest recorded historical level.12

As seafood prices continued to be aff ected by the 

oil spill in the Gulf of Mexico earlier this year, 

higher prices for fi sh and shellfi sh, up 5.5 percent in the third quarter, also aff ected the overall 

foods, feeds, and beverages index.

Finished goods prices rose overall in the third 

quarter, led by a 0.7-percent increase in the 

price index for automotive vehicles. A 1.5-percent increase in parts prices was the largest 

contributor to higher automotive vehicles prices, which resulted, in part, from a weakening 

of the dollar and higher prices for copper and 

steel. The price indexes for capital goods and 

consumer goods each recorded little movement for the quarter ended in September, as 

capital goods prices ticked up 0.1 percent and 

prices for consumer goods were unchanged.

Nonfuel industrial supplies and materials prices 

edged up 0.3 percent for the 3 months ended 

in September, after a 2.8-percent rise the previous quarter. A 1.4-percent increase in chemicals prices was partially off set by a 5.6-percent 

drop in prices for building materials. Unfi nished 

metals prices, which were up 32.3 percent since 

December 2008, rose only 0.4 percent in the 

third quarter of 2010.

Export prices

U.S. export prices increased 1.3 percent in the 

third quarter of 2010, following a 0.8-percent 

advance the previous quarter. Prices for U.S. 

exports have trended upward on a quarterly 

basis since edging down 0.3 percent the fi rst 

quarter of 2009. The price indexes for agricul5

 CURRENT PRICE TRENDS

0.11

0.05

0.05

0.19

Automotive vehicles

Capital goods

Industrial supplies and

materials, excluding fuel

Foods, feeds,

and beverages

ommodity groupings

Chart 3.Major contributors to the 0.3Ͳpercent increase in the third quarter 2010 in

import prices excluding fuel

0.00

0.11

0.05

0.05

0.19

0.00 0.05 0.10 0.15 0.20 0.25

Consumer goods,

excluding automotives

Automotive vehicles

Capital goods

Industrial supplies and

materials, excluding fuel

Foods, feeds,

and beverages

Percent change contribution

Commodity groupings

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

SOURCE: U.S. Bureau of Labor Statistics

Chart 3.Major contributors to the 0.3Ͳpercent increase in the third quarter 2010 in

import prices excluding fuel
tural exports and nonagricultural exports each 

contributed to the overall increase in export 

prices for the quarter ended in September 

2010, advancing 6.4 percent and 0.8 percent, 

respectively.

Agricultural export prices

Agricultural prices advanced 6.4 percent in 

the third quarter of 2010, the result primarily 

of a 48.4-percent jump in wheat prices and a 

20.8-percent advance in corn prices. Wheat 

prices rose as a result of a severe summer 

drought in Russia, Ukraine, and Kazakhstan. In 

fact, Russia, normally the world’s third largest wheat producer, started a ban on export 

shipments in August.13 Corn prices rose, as 

U.S. production in 2010 now is expected to 

be lower than originally forecast and demand 

remains strong for animal feed and ethanol 

production.14

Nonagricultural export prices

Nonagricultural prices rose 0.8 percent between June and September after rising a similar 0.8-percent for the quarter ended in June. 

The increase was led by higher nonagricultural industrial supplies and materials prices. 

Rising consumer goods prices also contributed to the increase. (See chart 4.)

The price index for nonagricultural industrial 

supplies and materials increased 1.6 percent in the third quarter, after a 3.0-percent 

advance between March and June. The largest contributor to the third quarter rise was 

a 2.5-percent increase in metals prices, led 

by a 10.8-percent increase in copper prices. 

Increased demand from China coupled with 

tighter supplies, notably from Chile, has led to 

higher prices.15

6

 CURRENT PRICE TRENDS

0.01

0.04

0.55

Consumer goods

Automotive vehicles

Capital goods

Nonagricultural industrial

supplies and materials

ommodity groupings

Chart 4.Major contributors to the 0.8Ͳpercent increase in the third quarter 2010 in

export prices excluding agriculture

0.15

0.01

0.04

0.55

0.00 0.10 0.20 0.30 0.40 0.50 0.60

Consumer goods,

excluding automotives

Automotive vehicles

Capital goods

Nonagricultural industrial

supplies and materials

Percent change contribution

Commodity groupings

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

SOURCE: U.S. Bureau of Labor Statistics

Chart 4.Major contributors to the 0.8Ͳpercent increase in the third quarter 2010 in

export prices excluding agriculture
 CURRENT PRICE TRENDS

Consumer goods prices rose 1.1 percent, the 

largest quarterly gain for the index since a 

1.2-percent increase in June 2006. A 2.2-percent increase in the price index for medicinal, 

dental, and pharmaceutical products was a 

major factor in the advance. However, other 

fi nished goods categories recorded little 

movement. Automotive vehicle prices ticked 

7

Notes

 1 See “Weak dollar seen as U.S. recovery route,” The Washington Post, Oct.19, 2010 and “Dollar’s Swoon Opens Doors,” The Wall 

Street Journal, Oct. 17, 2010.

2

 See, “Europe’s Debt Panic Brings Down Euro, Spurs Dollar Rally,” Global Finance, March 2010.

3

 See “Timeline – Euro Zone Debt Crisis,” Reuters, June 3, 2010.

4

 Kenneth A. Froot and Paul D. Klemperer, “Exchange Rate Pass-Through When Market Share Matters,” The American Economic 

Review, September 1989, pp. 637–54.

5

 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 fi rst 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.

6

 Froot and Klemperer. “Exchange Rate Pass-Through When Market Share Matters,” September 1989, pp.637–54.

7

 Gita Gopinath and Oleg Itskhoki and Roberto Rigobon, “Currency Choice and Exchange Rate Pass-Through,” The American Economic Review, March 2010, pp. 304–36.

8

 See, “Is China Ready to Challenge the Dollar?” Center for Strategic & International Studies, October 2009.

9

 Petroleum is primarily priced in U.S. dollars, so a drop in the value of the dollar will makes petroleum cheaper in foreign currency 

terms, thus increasing demand. The opposite is true when the value of the U.S. dollar rises relative to other currencies.

10 See “Oversupply fears return to oil market,” The Wall Street Journal, Sept. 20, 2010.

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

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

12 Letter from the Executive Director (International Coffee Organization, September 2010). Also, for more information about the International Coffee Organization, see http://www.ico.org/.

13 See “USDA cuts world wheat view, but says no repeat of ’08,” Reuters, Aug. 12, 2010.

14 See “Corn prices surge to 2-year high on demand exceeding production,” Bloomberg News, Oct. 12, 2010.

15 See “Copper market will get ‘tighter’, Codelco CEO says,” Bloomberg News, Oct. 12, 2010.

up 0.1 percent, while prices for capital goods 

were unchanged. 

For more information, please contact Sergei 

Shev at 202-691-7118 or by email Shev.Sergei@bls.gov or Dave Mead at 202-691-7154 or 

by email Mead.Dave@bls.gov.