0.2% Fall Reported for US Import Prices

There was a slump in US import prices for the first time in the last 6 months fuelled by the current trend of falling food prices and petroleum costs, hinting at a weak outlook for the US inflation rate. This turn of events could raise the chances of rates being kept steady by the Federal Reserve next week. In a statement made today, the labour department revealed that import prices fell by 0.2% in August after posting an unrevised gain of 0.1% for the month of July. The decline witnessed last month was the first since February.

Economists had earlier forecasted a 0.1% fall in import prices for the month of August in a poll conducted by Reuters. Economists surveyed by The Wall Street Journal expected a 0.1% decrease in August.

Imports have also contributed to low U.S. inflation especially now that the Federal Reserve wants prices to rise. Part of the reason is the strong value of the dollar that makes imports cheaper and more attractive to American consumers. In the 12 months ending in August, there was a 2.2% slump in import prices, this is the smallest increase reported since October 2014, after a 3.7% fall in July.

Prices for imported capital goods remain unchanged, while the cost of imported automobiles fell 0.2%. Imported consumer goods prices excluding automobiles fell by 0.1% and the cost of imported food decreased 0.5% last month.

In contrast to this trend, the strong dollar has also hurt U.S. exporters and put a dent in the U.S. economy. That’s unlikely to change much with the Fed plotting to raise interest rates soon. Higher rates also tend to strengthen the dollar. Over the past year all export prices have fallen 2.4%, the smallest annual decline since the price index dropped 1.7% YoY in November 2014.

The growing strength of the USD and the falling prices of crude oil have resulted in the shrinkage of import prices. Along with these factors, the slow rate of growth in wages have further enabled the inflation move further away from the Fed's 2% target.

The weak inflation reading released for the month of August added to a slowdown in job growth and soft manufacturing and services sectors surveys in reducing the likelihood of an interest rate hike at the Fed's Sept. 20-21 policy meeting.

The ICE US Dollar Index is currently near unchanged at 95.55. US index futures are edging higher in pre-market trade, with the S&P 500 rising by 0.13% to 2,124.75.Gold is trading flat at $1,325, while WTI crude oil is lower by 0.73% to $4.56 per barrel ahead of today’s EIA inventory report.