Import and Export Prices Both Have Largest Monthly Declines in 20 Years

Import prices fell for the first time this year in August, falling a much larger than expected -3.7% MoM (consensus -1.8%, prior revised from +1.7% to only +0.2% MoM). In addition, the annual gain plunged from a 27-year high last month of 21.6%, as originally reported ( now revised down to +20.1% YoY), to +16% YoY in August. In fact, the drop in import prices for August was the largest in almost 20 years. Lower energy prices were primarily responsible for the decline. Excluding petroleum, which fell -12% MoM but remains up 52% YoY, import prices fell a more modest -.3% MoM, and are up half the headline rate at +7.5% YoY. So clearly, petroleum prices have been a major driver of the recent volatility in import prices. In fact, imported petroleum prices fell the most in over 5 years in August. Natural gas prices also fell a large -16.4% MoM, the largest monthly drop in almost 2 years. Other major factors pushing up import prices over the past year have been industrial supplies (-8.4% MoM, +39% YoY) and food (+0.7% MoM, +16% YoY). Capital and consumer goods price rises have been very tame. Capital goods import prices in August fell -0.1% MoM and are up only +1.6% YoY. Consumer goods prices were unchanged in August vs July, but have risen +3.1% YoY. Reflecting the types of goods purchased, Canada, a major energy supplier to the US saw prices fall -3.8% MoM, but remain +21% higher YoY. Japan and China, with more consumer goods to the US, have also exported less inflation. Import prices for Japanese goods to the US fell -.1% moM and are up only +1.8% YoY. China is no longer an exporter of deflation, even when energy prices drop. Chinese import prices rose +0.1% MoM and are up +4.9% YoY. This is the first look at August inflation rates, and the news is clearly good with energy prices dropping. This will ease the Fed’s concerns about inflation expectations rising, and allow them to focus more on the poor economic growth both in the US and abroad. The strengthening dollar will also help on the inflation front as foreign goods will become relatively less expensive, but the negative impact of slowing export growth will remain a negative for economic growth as the US consumer shows increasing interest in saving rather than spending as jobs are lost. On the export price side, there was also a large drop. Export prices fell -1.7% MoM, the largest monthly decline since records began in 1988. The drop was due to a -9.6% MoM decline in agricultural export prices. Non-farm prices fell -0.7% MoM. Over the past year, US export prices have risen +8.2% YoY, with food prices rising +25% YoY.