A falling import-price category can invite a search for alternatives, but it cannot supply the alternative itself. BLS reported on February 10 that January nonfuel import prices fell 0.2 percent while fuel import prices rose 5.8 percent, both unadjusted monthly changes. The split is a reason to investigate different sourcing conditions, not evidence that buyers could replace fuel with nonfuel goods. [ximpim_02102017]

For a competition argument, the useful question is narrower: is there a workable substitute for the particular purchase? Our interpretation is that a favorable category trend becomes economically relevant only when a buyer can identify an alternative serving the required purpose. The nonfuel aggregate does not answer that question. It also conceals variation: BLS described higher prices for nonfuel industrial supplies and materials despite the overall nonfuel decline. [ximpim_02102017]

Domestic distribution adds another possible source of confusion. The February 14 producer-price release put January services inflation at 0.3 percent, seasonally adjusted. Changes in trade-service margins accounted for over 80 percent of that increase. Those margins belong to the wholesale and retail distribution measure; they are not imported input prices or net profits. A stronger margin index does not show whether a rival supplier became more competitive. [ppi_02142017]

A useful market hypothesis would therefore name an actual alternative and test its price, suitability and switching costs, rather than infer competition from two diverging indexes. Fuel pressure could encourage that search where alternatives exist; lower nonfuel prices could provide leads elsewhere. These are conditional incentives, not observed substitutions. Evidence of comparable offers and feasible switching would advance the argument; the national aggregates alone cannot finish it. [ppi_02142017][ximpim_02102017]

Source documents

  1. Producer Price Indexes – January 2017https://www.bls.gov/news.release/archives/ppi_02142017.htm
  2. U.S. Import and Export Price Indexes – January 2017https://www.bls.gov/news.release/archives/ximpim_02102017.htm