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Economy in Brief

Finland's Export and Import Prices Rise But Remain Contained
by Robert Brusca  August 24, 2020

Finland's aggregate export and import price indexes have tracked one another closely over the past decade. Over the past five years the terms of trade (ratio of export prices to import prices) have fallen by 0.1% at an annual rate. That amounts to a drop of less than a percentage point on balance over five years. Looking at the line items in export and import prices, there has been a lot of parallel movement as well in the components of export and import prices.

In fact, there is a much greater variation in export and import prices on prices changes over the past year than over the broader period.

Over the past five years, export and import prices have barely moved and the indexes for export and import prices of manufactures have not only moved at the same pace but that pace has been close to no change at all. For overall export and import prices, the correlation for annual price change over the last five years has been 0.95; that compares to a correlation of 0.93 for the price of manufactures (the graph that is plotted). This has been an incredible period of price stability for the international channels in Finland's economy.

The prices for manufactures on both the export and import side have been falling over 12 months and six months but are rising somewhat briskly over three months and at the twice the pace of export prices as for import prices. Vehicle prices are not rising at a very different pace over 12 months as between exports and imports, but export prices for vehicles are rising more sharply over three months than for imports. The small table shows the correlations between the various line items of prices quite apart from their net price changes over fixed period of time. While some of the items do have strong correlations, others like: agriculture & forestry, food, beverages & tobacco, motor vehicles, trailers & semitrailers, and investment goods do not generally track closely.

Durable consumer goods have a more lasting pattern of differences in their pace for exports and imports over the last 12 months. On that period, export prices are up by 5.2% and import prices are off by 0.7%. Durable consumer goods import prices are even falling at a 6.4% pace over three months while durable consumer goods export prices are rising at a 15.4% annual rate. Investment goods trends are very similar for exports and imports during this period (despite their low longer-term correlation) leaving most of the discrepancy in manufacturing prices to hang on the difference in trends for consumer durable goods.

Finland has long been a low inflation country and one that takes financial stability quite seriously. Finland's current overall rate of inflation is rising at 0.7% pace from July 2020 over July 2019. Among a group of 12 of the longest EMU members, Finland's inflation ranks as seventh lowest overall and sixth lowest in terms of its core rate (at a pace of 0.9%).

Despite some instability in energy prices, Finland has maintained a steadiness in its export and import prices. Although the general price level slipped in April and May, inflation still seems on a steady and low track.

Of course, no economic discussion is complete without accounting for the virus. Finland had a bout of infection with the coronavirus in early-April, but that has settled down and the infection rate remains low. Recently (as of August 22), infection rates have moved even lower.

Other countries in Europe are seeing rising infection rates; but for now Finland seems to be under control. There is no new impact on growth or reason to expect the inflation progression will be affected because of the path of the virus or because of polices to contain it. But as we have seen, the condition of the virus can shift abruptly and sometimes without clear reason. For now Finland appears to remain in a sweet spot for its overall inflation situation buttressed by extremely favorable export and import price trends.

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