Import prices were higher than expected in December, rising 0.4 percent on the month after declining 0.7 percent in November, topping forecasts in an Econoday survey that had centered on a 0.9 percent drop, with the highest forecast at minus 0.4 percent. Imported inflation also accelerated on a 12-month basis, reaching 3.5 percent after 2.7 percent in November.

The rebound in import prices signals the Federal Reserve's job is not over and it remains to be seen how it will translate through the price chain or whether it was a one-off in a cooling trend that started last April. That being said, the nonfuel import price index rose 1.9 percent year-over-year, down from 2.0 percent in November, the lowest rate since December 2020, when it was also 1.9 percent. In addition, Econoday Consensus Divergence Index is at 7, indicating only a minor outperformance of the economy.

On a monthly basis, nonfuel import prices rose 0.4 percent from November, after seven consecutive months of declines. Nonfuel industrial supplies and materials; consumer goods; foods, feeds, and beverages; capital goods; and automotive vehicles all contributed to the increase in the nonfuel import price index. Fuel import prices appreciated 0.6 percent on the month, their first gain since June 2022, for a 12-month increase of 19.4 percent.

Export prices, by contrast, fell 2.6 percent on the month, more than the 0.7 percent decrease expected by the consensus, for a 5.0 percent increase year-over-year, down from 6.1 percent in November. Agricultural prices were down 2.4 percent and nonagricultural prices 2.7 percent on the month.

Import prices are expected to fall 0.9 percent on the month in December following a 0.6 percent decline in November. Export prices, which fell 0.3 percent in November, are expected to fall 0.7 percent. Both import and export prices have been cooling significantly.

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 compiled for the prices of goods sold abroad but produced domestically. These prices, which exclude tariffs and taxes, measure underlying 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.