Import and export prices eased in August in further confirmation that baseline inflation pressures are dissipating and offering debating points for a 50-basis-point rate cut at next week's FOMC. Import prices fell 0.3 percent on the month versus Econoday's consensus for a 0.2 percent decline while the year-over-year rate eased to 0.8 percent versus expectations for 0.9 percent. Export prices fell 0.7 percent both on the month and on the year, the former well below expectations for 0.1 percent contraction.

Imported petroleum prices fell 3.2 percent on the month in August with this annual rate also at minus 3.2 percent. Prices for imported natural gas fell 3.7 percent and were down 51.7 percent on the year. Foods, feeds, and beverages edged 0.1 percent lower on the month for annual growth of 4.8 percent with finished goods prices, whether for capital goods or consumer goods or autos, showing no change or virtually no change.

Details on the export side include a 0.2 percent monthly decline for agricultural commodities for annual contraction of 6.9 percent. Nonagricultural commodities fell 0.6 percent for annual contraction of 0.1 percent with industrial supplies and materials down 1.1 percent on the month and 2.0 percent on the year. Finished goods prices were all flat on the month with export prices for autos and parts showing the most annual traction at 4.0 percent.

Import prices in August are expected to fall 0.2 percent after edging 0.1 percent higher in July and no change in June. Export prices, which jumped 0.7 percent in July, are seen falling 0.1 percent. Trends in this report have been flat in recent months.

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.