US import prices fall, but downward trend nearing end

WASHINGTON (Reuters): US import prices fell in February for an eighth straight month, weighed down by declining costs for petroleum and a range of other goods, but the pace of decline is slowing as the dollar’s rally fades and oil prices stabilise.

The Labour Department said on Friday import prices slipped 0.3% last month after a 1.0% decrease in January. Import prices have decreased in 18 of the last 20 months, reflecting a robust dollar and plunging oil prices.

They were down 6.1% in the 12 months through February, the smallest year-on-year drop since December 2014. Weak import prices have contributed to holding inflation below the Federal Reserve’s 2% target.

“We strongly feel that the peaks in both overall and core disinflation pressures are behind us,” said John Ryding, Chief Economist at RDQ Economics in New York. 

The import deflation is likely close to an end as the dollar’s appreciation loses some steam after the greenback gained about 20% against the currencies of the United States’ main trading partners between June 2014 and December 2015.

So far this year, the dollar has strengthened about 0.9% on a trade-weighted basis. At the same time, oil prices have also shown tentative signs of stabilising. Should these trends continue, import prices could start to rise soon and help to push up domestic inflation.

Improving trend

“Prospects of higher oil prices and slower dollar appreciation should help keep this improving trend intact,” said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

Reports last month showed a broad pick-up in prices in January, raising optimism among economists that inflation will rise toward the Fed’s target and allow the U.S. central bank to continue gradually raising interest rates this year.

The Fed increased its key overnight interest rate in December for the first time in nearly a decade. Economists had forecast import prices slipping 0.6% last month.

U.S. financial markets were little moved by the data, taking their cue from firming oil prices. Stocks on Wall Street were trading higher, while prices for U.S. Treasury debt fell. The dollar was flat versus a basket of currencies. Last month, imported petroleum prices fell 4.0% after plummeting 14.3% in January. Import prices excluding petroleum dipped 0.1% after being unchanged in January.

Imported food prices fell 2.0% last month, the largest drop since February 2012, while prices for industrial supplies and materials excluding petroleum slipped 0.3%.

Prices for imported capital goods were unchanged and the cost of imported automobiles fell 0.1%. Prices for imported consumer goods excluding autos rose 0.3%. The report also showed export prices fell 0.4% in February after sliding 0.8% in January. Export prices were down 6.0% from a year ago.

Export prices for industrial supplies and materials fell 2.0%. Prices for food exports rose 0.9%.