Weak consumer, capital goods curb US import prices

US import prices rose less than expected in June as rising costs for petroleum products were offset by declining consumer and capital goods prices, suggesting inflation could remain benign for a while. The marginal increase reported by the Labour Department on Wednesday likely reflects the lingering effects of the dollar's surge between June 2014 and December 2015, despite the greenback weakening this year against the currencies of the United States' main trading partners.
"The moderation in import prices is a concern. Although we caution against over-interpreting import price data, this weakness is worth monitoring carefully, as it likely reflects soft demand, either domestically or internationally," said Blerina Uruci, an economist at Barclays in Washington. Import prices increased 0.2 percent last month after jumping 1.4 percent in May. Import prices excluding petroleum dropped 0.3 percent after gaining 0.4 percent the prior month. Economists polled by Reuters had forecast import prices rising 0.5 percent in June.
In the 12 months through June, import prices fell 4.8 percent, the smallest drop since November 2014. The dollar surged 20 percent on a trade-weighted basis between June 2014 and December 2015, putting downward pressure on import prices and keeping inflation below the Federal Reserve's 2 percent target. Though the dollar has weakened this year, it has recouped the bulk of its losses in the wake of last month's stunning vote in Britain to leave the European Union. It is now down only 0.94 percent on a trade-weighted basis.
"Lacklustre global growth and a further rise in the dollar should keep import prices tame, but the more modest rate of dollar appreciation relative to 2015 suggests a less severe trend," said Sam Bullard, an senior economist at Wells Fargo in Charlotte, North Carolina. US financial markets were little moved by the data. Last month, imported petroleum prices rose 6.4 percent, while food prices stumbled 1.3 percent. Prices for imported capital goods slipped 0.3 percent and consumer goods, excluding automobiles fell 0.2 percent. Imported industrial supplies and materials prices excluding fuels fell 0.3 percent. The report also showed export prices increased 0.8 percent in June, after rising 1.2 percent in May. Export prices fell 3.5 percent from a year ago. Prices for agricultural exports increased 2.4 percent, boosted by higher soybean and corn prices. Prices for nonagricultural exports rose 0.5 percent last month. The increase was led by gains in prices for industrial supplies and material, as well as capital goods. But prices for consumer goods exports fell.