Prices Of Imports From China Are Falling

 

As are all import prices.

Figure 1: Log import prices of non-petroleum goods (blue), and of goods imports from China (red), all normalized to 2014M06=0. Source: BLS via FRED, author’s calculations.

Chinese import prices have fallen 3.3% (log terms) since mid-2014; overall non-petroleum by 4.2%. While the USD has appreciated less against the CNY than against a broad basket, the implied exchange pass through is not substantially different.

Figure 2: Log goods import prices from China (blue), and USD/CNY exchange rate (red), both normalized to 2014M06=0. Exchange rate normalized so down is dollar appreciation. Source: BLS and Federal Reserve Board and via FRED, and author’s calculations.

Figure 3: Log goods import prices ex.-petroleum (blue), and USD exchange rate against broad basket (red), both normalized to 2014M06=0. Exchange rate normalized so down is dollar appreciation. Source: BLS and Federal Reserve Board via FRED, and author’s calculations.

The implied exchange rate pass-through for imports of Chinese goods is about 42.9%, for imports of nonpetroleum goods about 23%. The former is consistent with my previous back-of-the-envelope estimates, discussed in this post.

If the USD rises another 10% (as discussed in this post), then nonpetroleum goods prices could be expected to decline an additional 2%.

To determine the drop in prices of imported Chinese goods, one would need at a minimum the further drop in the CNY relative to USD. All I can say is that President-Elect Trump’s pronouncements on US-China relations can only serve to accelerate financial capital net outflows, thereby putting further downward pressure on the CNY’s value. I don’t know if that is what the President-Elect intends, but that’s what he’s going to get…