Underlying trend in U.S. import prices to improve, likely to help stabilize domestic goods prices

U.S. import prices came in weaker than anticipated in August. It dropped 0.2 percent in sequential terms as compared with consensus forecast of a drop of 0.1 percent. Imported petroleum’s prices dropped 2.8 percent month-on-month, whereas it fell 12.9 percent in annual terms.

Stripping the headwind from energy, import prices of non-petroleum remained flat in month-on-month terms. Prices of beverage and food dropped 0.5 percent and were a drag on the monthly pace. It reversed some of the strength seen in July.

The import prices report was subdued throughout several categories, with imported prices of industrial goods, consumer goods and autos and parts all falling in sequential terms. Prices of capital goods remained flat.

Nevertheless, the year-on-year rate of change continued to rebound throughout several categories. Despite the month-to-month volatility, the underlying trend in imported deflation is viewed as rebounding and in line with a gradual waning of the drag from lower global commodity prices and from the stronger U.S. dollar, said Barclays in a research report.

Moreover, recent data indicated that import prices from the key trading partners of the U.S. are slowing moving toward neutrality. Improvement in imported inflation is likely to assist in stabilizing domestic core goods prices in the months ahead.

“More stable prices for domestic consumer goods should lead overall core CPI to rise further in the second half of this year; we look for core CPI inflation to have reached 2.3 percent y/y by the end of 2016”, added Barclays.