The import price index for February edged down 0.1 percent on the month after a downwardly revised 0.4 percent decline in January, compared with Econoday's consensus estimate of a 0.2 percent decrease. On a 12-month basis, import prices were down a larger-than-expected 1.1 percent after rising 0.9 percent in January, the first decrease since December 2020 and the largest since September 2020.

Another 4.9 percent drop in fuel prices more than offset a 0.4 percent advance in nonfuel prices on the month, with a similar pattern on a 12-month basis translating into an 11.6 percent fall in fuel prices and a 0.2 percent increase in nonfuel prices.

Driving nonfuel prices up were consumer goods, foods, feeds, and beverages, capital goods, as well as automotive vehicles. Prices for industrial supplies and materials were down on the month.

The export price index for February rose 0.2 percent on the month after 0.5 percent in January, while the 12-month index fell 0.8 percent, the first decline since November 2019.

Agricultural export prices rose 1.0 percent on the month and 3.3 percent year-over-year, the smallest 12-month gain since October 2020. Nonagricultural prices edged up 0.1 percent from January but fell 1.5 percent year-over-year, the first such decrease since December 2020.

Today's data are a welcome development, especially with nonfuel import prices growing at their slowest 12-month rate since July 2020. They come on the back of easing price pressures at the producer level: PPI final demand rose 4.6 percent year-over-year in February, down from 5.4 percent in January. However, at the retail level, price gains were steady in February at 6.0 percent year-over-year for the headline CPI and 5.5 percent when excluding food and energy, still far above the 2 percent Federal Reserve target, reminding the fight to bring down inflation is far from over. Yet banking issues related to high interest rates could make the central bank more cautious in its tightening approach, having to avoid jeopardizing the stability of the financial system.

Import prices are expected to fall another 0.2 percent on the month in February to match January's decline. Export prices are expected to fall 0.3 percent versus the prior month's 0.8 percent jump.

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.