After surging higher last month, import prices paused in December. On a monthly basis, prices were unchanged in December, but that is from a higher level as November's increase was increased to +3.3% MoM from the original report of a +2.7% monthly gain. The gain in November was the largest monthly increase in 17 years (1990).
The annual price increase was also bumped up last month to an even more lofty rise of +12.1% YoY from the previously reported gain of 11.4%. December's annual increase fell back to 10.9% YoY, but is higher than the consensus call of +10.5%. The annual price increases seen in recent months are the largest since 1987.
Higher oil prices and a weakening dollar are the primary causes for the imported inflation pressures. These two factors spur inflation and erode consumer's purchasing power, while also increasing raw materials costs for manufacturers. The dollar declined around 9% in 2007. Despite the weakness in the economy, the Fed will remain concerned about the impacts of rising inflation. This is the reason the term "stagflation" is beginning to be discussed recently.
Export prices have also been rising, especially for agricultural products. Agricultural prices rose +23.5% YoY in 2007, a record increase in the data going back to 1985. Export prices rose +.4% MoM in December, and are up 6% YoY. On an annual basis, import prices have risen almost twice as fast as export prices.
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