US: Import and Export Prices

Wed Jan 14 07:30:00 CST 2015

Consensus Consensus Range Actual Previous Revised
Import Prices - M/M change -2.7% -3.4% to -0.5% -2.5% -1.5% -1.8%
Export Prices - M/M change -0.5% -2.0% to -0.3% -1.2% -1.0% -0.8%
Import Prices - Y/Y change -5.5% -2.3%
Export Prices - Y/Y change -3.2% -1.9%

Today's import & export price data underscore last week's surprising decline in average hourly earnings, heightening the lack of price pressures as a central concern for Federal Reserve policy makers. Import prices fell a very steep 2.5 percent in December following a downwardly revised contraction of 1.8 percent in November and declines of 1.4 percent and 0.8 percent in the prior 2 months. Year-on-year, import prices are down 5.5 percent.

The contraction in oil prices is of course the central factor behind the deflation with petroleum prices down 16.6 percent in December alone for a year-on-year decline of 30.1 percent. But excluding petroleum, import prices are no better than flat, up 0.1 percent in December and unchanged year-on-year.

Export prices, where petroleum is less of a factor, are also down. Export prices fell 1.2 percent in the month for a year-on-year decline of 3.2 percent. Agricultural prices are key on the export side and are down 0.7 percent on the month and down 4.9 percent on the year.

Prices of imported and exported finished goods show less downward pressure though there's still plenty of minus signs. Year-on-year, prices of imported vehicles are down 0.8 percent with imported capital goods down 0.5 percent.

Today's report points to further deflationary concerns ahead for tomorrow's producer price report and Friday's consumer price report.

Market Consensus Before Announcement
Import prices dropped 1.5 percent in November, the 5th straight drop and the steepest since June 2012, and export prices fell 1.0 percent for the 4th straight drop and matching the steepest drop since June 2012. The year-on-year rate for import prices was at minus 2.3, the steepest negative reading since April 2013, with export prices at minus 1.9, the steepest since October 2013. And it's not just oil-related prices that are falling. Excluding petroleum, import prices fell 0.3 percent in the month for a 4th straight drop and the steepest since April this year while export prices, excluding both food and fuels for this reading, fell 0.5 percent for a third straight drop.

Import price indexes are compiled for the prices of goods that are bought in the United States but produced abroad and export price indexes are developed for the prices of goods sold abroad but produced domestically. These prices indicate inflationary trends in internationally traded products.

Changes in import and export prices are a valuable gauge of inflation here and abroad. Furthermore, the data can directly impact the financial markets such as bonds and the dollar. The bond market is especially sensitive to the risk of importing inflation because it erodes the value of the principal (the original investment) which is paid back when the bond matures. It also decreases the value of the steady stream of interest rate payments on this type of security. Inflation leads to higher interest rates and that's bad news for stocks, as well. By monitoring inflation gauges such as import prices, investors can keep an eye on this menace to their portfolios.