U.S. import prices fall sharply in November on decline in energy and food prices

Import prices in the U.S. dropped sharply in November, owing to a fall in energy and food prices. Prices fell 1.5 percent, as compared with consensus expectation of a fall of 1 percent. The softness in headline was greatly expected given the recent fall in energy prices; however, the fall in core prices was more surprising.

Import prices excluding the volatile items of food and fuels dropped 0.2 percent, implying that the softness in imported inflation extends beyond the latest move down in energy prices. The annual trend in headline import prices decelerated sharply to 0.7 percent in November, and the core measure that excludes food and fuel decelerated more modestly, to 0.4 percent.

The November report is in line with a moderation in imported inflation pressures at the core level, not just the sharp deceleration in headline induced by the volatile energy component. It seems that import prices for manufacturing items such as heavy machinery, computers, and electronic and electrical equipment have all weakened in recent months, leading the trend in prices of imports excluding food and energy to turn softer recently, noted Barclays in a research report.

Looking at trading partners, import price pressures from China continue to be modest at -0.1 percent sequentially and 0.3 percent year-on-year. Anecdotal evidence implies that in response to tariffs from the U.S., Chinese companies might be lowering prices in order to stay competitive in the U.S. market. This would be in line with monthly import price patterns recently – import prices from China were rising at a modest rate in early 2018, but began to turn negative in the middle of the summer, when trade tensions and tariffs deepened.

There was a considerable variation in the import prices by commodity in November. Volatile components such as petroleum and food dropped sharply. The industrial supplies category also fell considerably, although once the impact of petroleum was stripped out, this measure was widely flat on the month. Food prices dropped again after having risen at a more robust rate the previous two months. Prices came in flat for categories such as “autos and parts” and consumer goods, while capital goods prices dropped 0.1 percent.

At 16:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was slightly bullish at 59.8567s. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex