US import prices fall in January; annual increase smallest in two years

US import prices dropped for a seventh straight month in January amid declining costs for energy products, leading to the smallest annual increase in imported inflation in two years.

The report from the Labor Department on Friday (Feb 17), however, did little to assuage financial market fears the Federal Reserve (Fed) could maintain its interest hiking campaign through summer after data this week showed a jump in monthly consumer and producer prices in January, suggesting a slow disinflation journey.

Import prices fell 0.2 per cent last month after slipping 0.1 per cent in December. The drop in import prices, which exclude tariffs, was in line with economists’ expectations.

In the 12 months through January, import prices increased 0.8 per cent. That was the smallest year-on-year gain since December 2020 and followed a 3.0 per cent rise in December.

Imported fuel prices dropped 4.9 per cent after declining 4.4 per cent in December. Petroleum prices fell 4.5 per cent, while natural gas tumbled 11.2 per cent. The cost of imported food surged 1.3 per cent.

Excluding fuel and food, import prices gained 0.2 per cent. These so-called core import prices rose 0.4 per cent in December. Core import prices have now increased for two straight months, likely reflecting the US dollar’s recent weakness against the currencies of the United States’ main trade partners.

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The Fed has raised its policy rate by 450 basis points since last March from near zero to a 4.50 per cent-4.75 per cent range, with the bulk of the increases between May and December. Though two additional rate hikes of 25 basis points are expected in March and May, financial markets are betting on another increase in June.

Data this month have suggested strength in the economy at the start of the year, with robust job growth and retail sales gains. That has prompted some economists, including those at Bank of America Securities, to forecast a rate hike in June.

“March and May hikes appear very likely, and the Fed might have to hike further if inflation, job growth and consumer demand refuse to soften,” Bank of America Securities said in a note. “We are adding a 25 basis point hike in June to our forecast.”

Prices of imported capital goods increased in January and there was 0.6 per cent jump in the cost of motor vehicles. Consumer goods prices, excluding automotives, gained 0.2 per cent.

The cost of imported goods from China fell 0.4 per cent, the largest monthly drop since November 2016. That reflected a 2.3 per cent decline in the price of communications equipment manufacturing. Prices for imports from the European Union surged 1.3 per cent, while the cost of goods from Mexico rose 0.8 per cent.

“These data provide no encouragement for those looking for manufactured goods price increases to subside to pre-pandemic trends on an easing of supply-chain constraints,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.

The Labor Department also reported that export prices rebounded 0.8 per cent in January, after declining for six straight months. Prices for agricultural exports fell 0.2 per cent as a 21.6 per cent plunge in vegetable prices more than offset higher prices for soybeans and corn.

Nonagricultural export prices increased 0.8 per cent, lifted by industrial supplies and materials, capital goods, automotive vehicles and consumer goods.

Export prices rose 2.3 per cent year-on-year, the smallest gain since December 2020, after increasing 4.3 per cent in December. REUTERS