U.S Import Prices Fall In November

U.S. import prices recorded their biggest drop in nine months in November on declining petroleum costs, with renewed dollar strength threatening to keep imported inflation subdued.

The Labor Department said on Tuesday import prices fell 0.3 percent last month after a downwardly revised 0.4 percent gain in October. Last month’s drop was the biggest since February and followed two straight months of increases.

Fuel import prices dropped at a 3.9% pace over the month and advanced by 2.7% on the year, while non-fuel import prices slipped 0.1% on the month and were down by 0.3% in comparison to the year ago month.

All Imports Excluding Fuel: Prices for nonfuel imports edged down 0.1 percent for the second consecutive month in November. Declining prices for finished goods and nonfuel industrial supplies more than offset higher foods, feeds, and beverages prices. Nonfuel prices declined 0.3 percent over the past year, after decreasing 3.2 percent between November 2014 and November 2015.

The drop over the past year was driven by a 1.6-percent decline in capital goods prices and a 0.6-percent decrease in the price index for import consumer goods.

On the export side of the equation, prices of exports were off by 0.1% on the month and 0.3% over the past year.

“Global deflation remains a powerful force,” writes Steven Ricchiuto, Mizuho Chief US Economist.

He points out that non-fuel import prices fell 0.1% in November for a second consecutive month while non-agricultural export prices also fell by 0.1% during the month. U.S. export prices also dipped in November.

Commenting on the data, Blerina Uruci at Barclays Research said: "Compared with a year ago, non petroleum import prices fell 0.2% y/y, a significant improvement from the strong deflationary trend in 2014 and 2015.” The recent upward trend suggests that the impulse from the dollar appreciation has faded.

"We maintain our view that import prices will gradually move away from deflation territory in the coming months, following improving global commodity prices and the gradual waning of the effect of a stronger dollar."

There was a further recovery in agricultural export prices for the month, which cut the annual decline to 1.2%, while non-agricultural prices fell 0.1% on the month to give a 0.3% year-on-year retreat.

There has not been a year-on-year increase in overall import prices since July 2014, but there is a strong probability that the rate will turn positive over the next two months due to base effects. Higher energy prices will also increase import prices, but the effect will be offset by dollar strength, which will tend to put downward pressure on overall import prices.

Overall, there is little potential for any significant upward pressure on US inflation from import prices over the next few months and there could certainly be a small net deflationary impact, which will lessen the potential for wider upward pressure on reported inflation.