Import And Export Prices Show Traction

Inflation may be coming alive and reflecting more than just higher oil prices. Import prices surged 1.4 percent in May for the best rate in four years. And the news is also good excluding petroleum, with sales up 0.4 percent in a gain that may not look that great but is still the best in more than 2 years. Export prices also show traction, up 1.1 percent in the month for the largest gain in five years.

Prices for industrial supplies, on both the import and export sides, have been rising strongly the past three months, showing strength for petroleum-related products as well as durable goods. Petroleum import prices shot up 17.4 percent for the largest monthly gain in 17 years. Export prices of agricultural products, which have been weak, are now also on the climb.

Not on the climb, at least yet, are finished goods prices where import and export readings are all flat in the month showing across-the-board contraction in the low single digits. Import prices for capital goods are especially weak, down 1.9 percent year-on-year in further evidence that domestic business investment is soft. The weakness here is a reminder that year-on-year rates in the report, though improving, remain deeply negative, at 5.0 percent overall for imports and 4.5 percent for exports.

This report is not closely watched and isn't likely to reset expectations on inflation, which right now are very weak. But they doubtlessly are picking pressures and could be a leading indication for unexpected strength in tomorrow's producer price report and Thursday's report on consumer prices.

Recent History Of This Indicator:
Import & export prices emerged from a long run of contraction in March and, getting an oversized boost from petroleum prices, are expected to jump 0.8 percent in May. Export prices, however, are not expected to show much strength with the consensus at only plus 0.2 percent. Key to this report will be the non-petroleum reading on the import side where the year-on-year rate has been in the negative low single digits, a trend that unfortunately is not inflationary.