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The BLS report on Import and Export Prices surprised economists with unexpected declines.

Import Prices

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Key Points

  • Synopsis*: Import prices declined 0.6 percent in August, the largest monthly drop since the index fell 1.3 percent in January 2016*. The August decrease followed a 0.1-percent decline in July and was only the third monthly drop over the past 12 months. Prices for U.S. imports advanced 3.7 percent from August 2017 to August 2018 and have not recorded a 12-month decline since October 2016.
  • Fuel Imports: Import fuel prices decreased 3.9 percent in August, the first decline for the index since a 2.6- percent drop in March and the largest monthly decline since a 6.8-percent decrease in February 2016. Petroleum prices declined 3.9 percent in August, after increasing in each of the previous 4 months, and natural gas prices fell 6.3 percent following an 18.0-percent increase in July. Despite the downturn in August, fuel prices rose 30.6 percent over the past 12 months. The price index for petroleum increased 33.0 percent for the year ended in August, and prices for natural gas decreased 11.7 percent over the same period.
  • All Imports Excluding Fuel: Nonfuel import prices edged down 0.1 percent in August, after decreasing 0.3 percent in each of the previous 2 months. In August, the decline was driven by falling prices for nonfuel industrial supplies and materials, although lower capital goods prices also contributed. In contrast, the price index for foods, feeds, and beverages advanced in August. Despite the downward trend over the past 3 months, nonfuel import prices increased 0.9 percent between August 2017 and August 2018. The increase was led by a 6.4-percent rise in nonfuel industrial supplies and materials prices over the 12-month period.

Export Prices

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Key Points

Synopsis: Prices for U.S. exports decreased 0.1 percent in August, after declining 0.5 percent in July. The July downturn was the first monthly drop since June 2017. In August, lower prices for nonagricultural exports more than offset higher agricultural prices. The price index for overall exports advanced 3.6 percent for the year ended in August and has not recorded a 12-month decline since a 0.2-percent decrease in November 2016.

Agricultural Exports: The price index for agricultural exports rose 0.2 percent in August following a 5.2-percent decline the previous month. In August, higher prices for soybeans, wheat, and corn more than offset lower prices for meat, nuts, and fruit. Agricultural prices decreased 1.7 percent for the year ended in August, after increasing 1.7 percent between August 2016 and August 2017. Falling prices for soybeans, fruit, and meat all contributed to the decline over the past 12 months.

All Exports Excluding Agriculture: Nonagricultural export prices fell 0.2 percent in August, after recording no change in July. The August decrease was led by declining prices for nonagricultural industrial supplies and materials, consumer goods, and automotive vehicles. In contrast, the price index for capital goods advanced in August. Prices for nonagricultural exports increased 4.1 percent over the past year and have not recorded a 12-month decline since November 2016.

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Consensus Estimates

The Econoday consensus forecast missed the mark badly this month on import and export prices.

Econoday Comments

  • The dollar has been strong which does help explain at least some of the surprising weakness for import prices which fell 0.6 percent in August to come in well below Econoday's low estimate of -0.3 percent. Prices for imported petroleum fell 3.9 percent in the month and explains some of the weakness but even when excluding petroleum, import prices still fell 0.2 percent.
  • Prices of foods & feeds are a positive in the month, up 0.4 percent though prices of imported finished goods remain dead flat, inching 0.1 percent lower for capital goods and unchanged for vehicles and also consumer goods. Year-on-year, finished goods prices are barely in the plus column and are led by consumer goods at only 0.6 percent.
  • But the weakness is more than just the dollar and imports, it's also on the export side where prices fell 0.1 percent on top of the prior month's 0.5 percent drop. Prices for finished exports are also very weak, declining 0.1 percent for both vehicles and consumer goods with capital goods up only 0.2 percent. Prices agricultural exports also inched 0.2 percent ahead though the year-on-year rate is in the negative column at 1.7 percent in what is bad news for the nation's farmers.
  • Price pressures on the global level are very subdued and further gains for the dollar would point to increasingly subdued levels for imported inflation. But for the Federal Reserve the risk right now is tied, not to global prices or consumer prices, but to lack of capacity in the labor market and the prospect of wage inflation.

Final Thoughts

Falling prices are a good thing for consumers. Standards of living rise when more goods are available at cheaper prices.

However, part of the reason the dollar is strong is due to Trump tariffs, an effective tax on consumers. Another factor is rising US interest rates vs. the rest of the developed world.

It would be much better if the dollar was strengthening because of less government spending.

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Mike "Mish" Shedlock.