WASHINGTON: Prices for imported goods rose in May at their fastest pace in over four years, a sign that rising oil prices and the fading strength of the dollar are contributing to firming domestic inflation.
Import prices rose 1.4% in May, the Labor Department said Tuesday, following an upwardly revised 0.7% increase in April. Economists surveyed by The Wall Street Journal had expected a 0.7% rise for May.
The gains weren’t limited to oil-related products, whose prices have been climbing since January when crude oil hit a low near $30 a barrel. Import prices excluding petroleum posted their first monthly advance since March 2014, with higher prices for finished goods such as cars and consumer products.
Recent price increases for finished goods “suggest that the downward push of the firm dollar on import prices is beginning to fade,” said Michael Moran, chief economist at Daiwa Capital Markets America, in a note to clients.
The firming import prices come as Federal Reserve officials begin a two-day meeting to evaluate the state of the economy and consider adjusting monetary policy. May’s dismal jobs report may be outweighing other positive signs for the economy, such as April’s jump in consumer prices and recent robust consumer spending.
The monthly increase largely reflected an uptick in oil prices. Import prices for petroleum and petroleum products advanced 17.4% in May, an acceleration from April’s 11.0% rise. Over the year, petroleum prices are still down 29.1%.
Prices for non-petroleum imports rose 0.4% from April, matching a March 2014 figure that was the highest since April 2011. Excluding the volatile food and fuel categories, import prices also rose 0.4% from April and are still down 1.7% from May 2015.
“Core import prices are likely to move toward stability on a year-over-year basis in the months ahead” as the dollar loses its strength, said Joshua Shapiro, chief U.S. economist at MFR, Inc.
Slowdowns in overseas economies had softened demand for many commodities in recent months, weighing on their prices on the global market. A stronger dollar, meanwhile, makes imports relatively cheaper for U.S. consumers and exports more expensive for overseas buyers. But the dollar has weakened since the beginning of the year, and oil prices have also firmed around $50 a barrel in recent weeks after hitting decade lows near $30 in January.
Federal Reserve Chairwoman Janet Yellen said at a speech earlier this month she believes the strong dollar and low oil prices, the two factors weighing on inflation, “will likely prove only temporary.” As those factors recede, she expects inflation to move toward 2%.
The U.S. imports roughly $2.7 trillion annually in goods and services, or around 16% of GDP.
The latest figures show import prices for nonfuel industrial supplies and materials, such as metals and building materials, rose 1.7% in May, after rising 0.4% in April. The rise in input prices could signal growing demand in the U.S. manufacturing sector, which expanded for the third straight month in May, according to the Institute for Supply Management.
Overall import prices are still down 5.0% from a year earlier. The year-over-year figure has declined each month for 22 straight months, but the annual drops have been shrinking fairly steadily since September.
U.S. export prices rose 1.1% in May from the prior month, its largest increase since March 2011. But export prices are still down 4.5% year-over-year.
Fed officials held off on raising interest rates at the end of April, in part because of worries about when inflation would reach the central bank’s 2% target. As measured by the Fed’s preferred gauge, the price index for personal-consumption expenditures, inflation has undershot 2% for four years.
Most economists surveyed by The Wall Street Journal expect the Fed to raise short-term interest rates later this summer. Just 6% said they believe the rate increase will come this week. Unlike other price gauges measured by the government, import prices aren’t seasonally adjusted.