U.S. headline import prices fall in June

Imported inflation in the U.S. came in softer than consensus expectations in June. Headline import prices dropped 0.9 percent sequentially and 2 percent year-on-year, mainly due to sharp falls in energy and food prices. Stripping food and duels, import prices dropped at a more modest pace of 0.2 percent sequentially and 1.6 percent year-on-year. Prices of capital and consumer goods dropped a bit on the month, and autos prices edged higher.

The annual trend in imported inflation has softened in the past year. The fall in energy prices at the end of 2018 drove the headline import prices into deflation. However, weaker imported inflation has become evident in less-volatile measures excluding fuels. Capital and consumer goods imports continue to be in deflation.

For capital equipment, most of the softness seems to be concentrated in computer and semiconductor prices, which dropped 4.9 percent year-on-year in June. The price drop in these categories coincides with the wider softness in the manufacturing sector that is playing out in major industrialized nations and might be a sign that weak demand and/or high inventories have dampened prices, noted Barclays in a research report. Moreover, computer and semiconductor prices dropped particularly sharply from China and Mexico, which raises questions as to what extend already imposed and threatened tariffs might have influenced strong pricing behaviour in the past months.

Meanwhile, on the consumer side, there was softness in household goods, which dropped 2 percent year-on-year. This is especially a concern for core goods consumer prices in the CPI and PCE baskets, given a large share of those goods is imported, and suggests some weakness for consumer prices that might counter upside pressures from tariffs on consume goods, said Barclays. Imported inflation from China softened further, coming in at -0.1 percent sequentially and -1.5 percent year-on-year.

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