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BCRP: terms of trade grew 7.4% annually in October 2021

The Central Reserve Bank of Peru (BCRP) reported that the terms of trade registered an increase of 7.4% last October, compared to the same month of 2020.

According to the issuing entity, this progress was favored by higher export prices with an increase of 30%, by higher prices of copper, zinc, gas and coffee.

Likewise, import prices rose by 21% as a result of higher oil and input prices (food and industrial).

In relation to September, the terms of trade increased 2.9%. Export prices increased 4.9%, mainly due to higher copper prices. Import prices increased 1.9% due to higher oil prices.

“In this way, the terms of trade maintain eighteen consecutive months of year-on-year growth, in a context of higher prices of raw materials in the international market,” said the BCRP through its report.

With these results, the terms of trade index reaches the value of 117.3, close to the historical record of June 2021 (117.9).

BCRP: what are the terms of trade?

According to the BCRP, the terms of trade correspond to an index that relates export prices to import prices. They reflect the purchasing power of our exports compared to the products we import from abroad.

In Peru, the terms of trade are calculated using the formula of Fisher’s chained index, which reduces the substitution bias in the face of changes in relative prices (the main defect of the Laspeyres index) or the underestimation of the results by assuming that the The current basket is the relevant one for the base period (main defect of the Paasche index), as it is obtained from the geometric average of the two indices indicated.

On the other hand, chained indices such as Fisher’s use the previous period as a base and then chain the results obtained with those of previous periods. Other countries that have already started using chained indices include the United States, New Zealand and Australia. For more details on the use of this index in Peru, the Annual Report 2001 of the Central Reserve Bank of Peru can be consulted.

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