Import prices fell 0.6 percent in May which was just under Econoday's consensus for a 0.5 percent decline that brings to nine declines in the last eleven months. This is very favorable for the inflation outlook at the consumer level. Year-over-year contraction for import prices is at minus 5.9 percent which is the fourth straight negative reading. And in a good sign for core consumer prices, non-fuel import prices fell 0.1 percent in the month with this annual rate at minus 1.6 percent for a third straight negative score.

In a sign that price pressures are easing on a global scale, export prices dropped 1.9 percent in May which was much steeper than Econoday's consensus. This annual rate deepened to minus 10.1 percent, also the fourth straight contraction. Prices for agricultural exports fell 2.1 percent in May for the largest drop so far this year; yearly prices here are down 8.1 percent for the steepest decline in more than seven years.

Turning back to import prices, fuels fell 6.4 percent on a monthly basis after April's 4.1 percent slide. These readings help explain Saudi Arabia's unilateral decision earlier this month to cut production sharply. Over the past year, import petroleum prices are down 34.1 percent.

This report together with yesterday's producer price report and also yesterday's inflation expectations at the business level all point squarely to cooling, if not chilling, at the base of the economy. This is good for the inflation outlook but, on the other hand, could be an early signal that global growth forecasts may have to be scaled back.

Import prices rose 0.4 percent in April, ending nine straight declines which, however, are expected to resume in May where the consensus is a 0.5 percent fall. Export prices, which rose 0.2 percent in April, are also expected to fall back, at a consensus 0.3 percent.

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.