relationship between import prices and domestic cereal prices

Question

I'm curious about the dynamics of imported prices compared to domestic prices of the same goods. I saw something online that said

"Measure inflation: A primary reason for measuring import prices is to track the impact they have on domestic inflation. Movement in import prices can often be an indicator of future inflation since some inputs to domestic production, as well as consumption, are imported."

Is the opposite true? Can a movement in domestic prices be an indicator that import prices have risen. I'm interpreting inflation as meaning that domestic prices are increasing.

If I have some data about local prices, what can I say about imported prices that I don't have access to (say of like wheat or some other cereal)? if I would need more information, what information would that be?

Answer 1

Can a movement in domestic prices be an indicator that import prices have risen?

Yes. This is clearest in the case of goods which are not produced domestically, so that a country's imports are its total supply. For example, bananas cannot be grown in the UK except perhaps at very high cost (eg to grow them in heated greenhouses). So it can be assumed that any bananas sold in the UK have been imported. If the market price of bananas in the UK were to increase, that would probably indicate an increase in the price of banana imports. There could be other causes, such as an increase in costs of transport from ports to shops, or an increase in shop rental costs, and additional evidence (eg whether the cost of transport of other goods has increased) would be needed to eliminate (or confirm) such possibilities.

For goods that are both imported and produced domestically, the situation is more complex, and the additional evidence that would be needed would be more extensive. An increase in the domestic market price of a good would tend to suggest an increase in the price of imports of the good if:

1. Domestic production costs of the good have not increased (this might be evidenced by an increase in producers' profit margins).
2. Domestic demand for the good has not increased (this might be evidenced by a reduction in the volume of sales of the good consistent, given the price increase, with reasonable assumptions of price elasticity for a good of its type).