May 14, 2019 / 12:39 PM / 5 months ago

U.S. import prices rise; underlying imported inflation weak

WASHINGTON (Reuters) - U.S. import prices rose less than expected in April as increases in the cost of petroleum and food were tempered by the largest decrease in the price of capital goods in 10 years, suggesting inflation could remain tame for a while.

FILE PHOTO: Shipping containers are shown stacked on a container ship at the Port of Los Angeles in San Pedro, California August 31, 2010. REUTERS/Fred Prouser

The report from the Labor Department on Tuesday came on the heels of data last week that showed moderate producer and consumer price gains in April, which underscored the Federal Reserve’s projection of no more interest rate hikes this year.

Economists said while inflation was not too low for the U.S. central bank to cut rates this year, the Trump administration’s escalating trade war with China, if it starts to impact economic and job growth, could force the Fed’s hand.

The U.S. central bank early this month kept rates unchanged and signaled little inclination to adjust monetary policy anytime soon. Fed Chairman Jerome Powell said he believed the weak inflation readings “may wind up being transient.”

“There is little reason for the Fed to do anything and the assumption would normally be that they would stand pat,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “But this is not a normal world where economics is the driving force for monetary or fiscal policy.”

Import prices increased 0.2% last month after an unrevised 0.6% increase in March. Economists polled by Reuters had forecast import prices would climb 0.7% in April.

In the 12 months through April, import prices fell 0.2% after edging up 0.1% in March.

The dollar was trading slightly higher against a basket of currencies, while U.S. Treasury prices were trading mostly lower. Stocks on Wall Street rebounded after recent steep declines.

EYES ON TARIFFS

Inflation could get a boost from last week’s move by President Donald Trump to raise tariffs on $200 billion worth of Chinese goods to 25% from 10%. Economists estimate the latest duties could add as much as two-tenths of a percentage point to inflation. That will most likely show in consumer prices as import prices exclude duties.

“If all of the tariffs are passed through to the consumer, it would boost year-over-year growth in the core CPI by four-tenths of a percentage point,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.

“Odds are that the impact will be smaller, as some U.S. businesses will eat the cost or risk losing sales. Therefore, we expect the boost to inflation will be closer to two-tenths of a percentage point.”

In April, prices for imported fuels and lubricants rose 2.5% after surging 6.9% percent in the prior month. Prices for imported petroleum jumped 6.1% percent after rising 5.3% in March. Imported food prices rebounded 2.8% last month, the largest increase since July 2016, after falling 0.2% in March.

The cost of imported capital goods dropped 0.4% last month, the biggest fall since March 2009. Prices for imported consumer goods excluding automobiles decreased 0.3% in April, after declining by the same margin in March.

Excluding fuels and food, import prices dropped 0.3% in April after falling 0.2% in the prior month. The so-called core import prices decreased 1.1% in the 12 months through April.

Though the dollar has weakened a bit this year, its gains last year against the currencies of the United States’ main trading partners continue to depress core import prices.

Chinese import prices fell 0.2% last month after being unchanged in March. They dropped 1.1% on a year-on-year basis, the largest decline since May 2017. The cost of goods imported from Japan slipped 0.1% percent. Prices of Canadian imports, however, surged 1.3 percent, driven by higher fuel prices.

The report also showed export prices rose 0.2% in April after increasing 0.6% in March. A 1.5% decrease in prices of agricultural exports was offset by a 0.4% rise in prices of nonagricultural goods. Agricultural export prices were weighed down by a 17.2% plunge in vegetable prices.

Export prices rose 0.3% on a year-on-year basis in April, driven by weak prices for soybeans, corn, cotton, fruit, nuts and meat. They increased 0.6% in March.

“The farmers, who will be bashed once again by retaliatory tariffs, are already suffering from declining prices,” Naroff said.

Reporting by Lucia Mutikani; Editing by Paul Simao

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