US: Import and Export Prices

Thu Sep 10 07:30:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Import Prices - M/M change -1.6% -3.0% to -0.4% -1.8% -0.9% -0.9%
Export Prices - M/M change -0.4% -1.0% to 0.1% -1.4% -0.2% -0.4%
Import Prices - Y/Y change -11.4% -10.4%
Export Prices - Y/Y change -7.0% -6.1%

Significant declines sweep nearly all categories of the import & export price report pointing squarely to a deepening of cross-border deflationary pressures. Import prices fell 1.8 percent in August, slightly more than expected, while export prices fell 1.4 percent which is substantially more than expected. The monthly drops for both are the steepest since the oil-price rout of January.

Petroleum pulled down the import side but even when excluding petroleum, prices fell 0.4 percent. Export prices were hit by lower prices for industrial supplies, foods-feeds-beverages, and also agricultural products. And finished goods, whether on the import or export side, show a run of minus signs for both the monthly readings and the year-on-year readings.

Year-on-year rates are severe, at minus 11.4 percent for total imports, which is the lowest since September 2009, and minus 7.0 percent for exports which is the lowest since July 2009. This report highlights the risk that inflation may not be moving to the Fed's 2 percent target any time soon which is a major argument on the side of the doves at next week's FOMC meeting.

Market Consensus Before Announcement
The drop in oil and commodity prices is expected to pull down import & export prices more steeply than usual, to minus 1.6% from minus 0.9% for import prices and to minus 0.4 percent from minus 0.2% for export prices. Prices in this report have been deep in the minus column, the result of both weak oil and weak commodity prices but also global weakness in final demand.

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.