What Is an Import Price Index?

The Import Price Index (IPI) is a tracking mechanism that the US Department of Labor's Bureau of Labor Statistics (BLS) uses to track changes in prices for goods and services that are both imported to the US and exported to foreign nations from the US. It has become one of several major economic indicators that are used by US economists to gauge growth levels in the economy, along with the Consumer Price Index (CPI) and Producer Price Index (PPI). Together, all three indexes are used to produce an International Price Program (IPP) set of indicators for the economy that are published on a monthly basis as of 1993. The actual prices for goods and services are kept confidential, however, and not included in publicly available reports, as a means of preventing price manipulation in international trading markets.

The BLS considers price indexes such as the Import Price Index important as they serve several key functions. First, the IPI provides a more accurate picture of actual foreign trade levels that the US is engaged in than are provided elsewhere. The Import Price Index is also considered important in calculating ongoing inflation rates in the country and helping the federal government to formulate economic policies toward the future that will combat inflation and lead to robust economic growth and US competitiveness in foreign markets. Together, the three indexes are also used to track changes in ongoing trade that is broken down by level of air versus cargo ship transport, as well as passenger transport income generated by the same means.

Price statistics overall have a large role to play in how government establishes its monetary policies. This can affect many aspects of society from the rise in cost of living expenses, to domestic consumption of foreign versus locally-produced goods. The Import Price Index is, therefore, an important feature of trade negotiations with other nations for the US, as well as for calculations of price variation for goods and services based on how national currencies are valued on international currency exchanges.

The IPI is also sub-divided regionally by price level to provide a clear picture of the impact that various foreign markets have on the US market. This regional accounting for prices is known as a normalized average, which is an attempt to balance the true price of goods based on equalizing variables through a weighted average system. Such an accounting includes factoring in the cost of living of the geographic region where a product was produced and the economic conditions for a particular time period in which it was produced.

While price indexes are extensive collections of weighted data that attempt to produce an accurate, general guide for the competitiveness of markets, they are not all inclusive. The Import Price Index has several significant sectors of international trade that it does not include in its calculations as of 2011. These encompass all military goods, and any product that is used, rebuilt, or repaired, and later sold. Unique international markets where comparative valuations are hard to come by are also exceptions to the rule and include the trade in artwork, charitable donations, and the short-term leasing of equipment of any kind that is contracted out for less than a year.