WASHINGTON: US import prices fell for a second straight month in December as the cost of petroleum products tumbled and a strong dollar curbed prices of other goods, leading to the largest year-on-year drop in more than two years.
The report from the Labour Department on Wednesday added to weak producer and consumer prices data in strengthening economists’ expectations of a pause in interest rate increases from the Federal Reserve in the near term.
Fed Chairman Jerome Powell said last week that low inflation afforded policymakers “the ability to be patient and watch patiently and carefully” while they monitored economic data and financial markets for risks to growth. The US central bank has forecast two interest rate increases this year.
“In 2019, we see a weaker inflationary impulse from abroad on domestic prices,” said Jake McRobie, a US economist at Oxford Economics in New York. “This will give the Fed some breathing room in adjusting rates slowly.”
Import prices declined 1.0 per cent last month after dropping 1.9 per cent drop in November. Economists polled by Reuters had forecast import prices decreasing 1.3 per cent in December.
In the 12 months through December, import prices fell 0.6 per cent, the biggest year-on-year drop since September 2016, after rising 0.5 per cent in November. Prices declined 0.6 per cent in 2018, the first calendar year decrease since 2015, after surging 3.2 per cent in 2017.
US financial markets were little moved by the data.
Last month, prices for imported fuels and lubricants fell 9.2 per cent after tumbling 13.3 per cent in November. Imported food prices edged up 0.1 per cent in December after dropping 2.2 per cent in the prior month.
There were decreases in the cost of capital goods, but prices for motor vehicles and consumer goods eked out small gains. Excluding fuels and food, import prices were unchanged last month after slipping 0.1 per cent in November.
The so-called core import prices rose 0.6 per cent in the 12 months through December. Imported core inflation is being restrained by the strong dollar, which gained about 7.5 per cent last year against the currencies of the United States’ main trade partners.
Import prices do not include tariffs. The cost of goods imported from China was unchanged last month. Prices for imported Chinese goods fell 0.2 per cent in 2018 and have not increased on a calendar year basis since 2011.
Against the backdrop of low inflation and slowing growth in China and Europe, some economists believe the Fed will not hike interest rates in the first half of 2019. There are signs the US economy slowed at the end of 2018, with consumer and business sentiment surveys weakening sharply in December.
“Downside risks are developing for US inflation,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “Therefore, the Fed has the green light to pause until June, if not longer.”
— Reuters
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