US import prices post biggest drop in over two years in June

WASHINGTON — US import prices fell the most in more than two years in June as prices for petroleum products fell and a strong dollar weighed on the costs of other goods.

Economists said the unexpected drop in import prices reported by the Labor department on Friday was likely temporary given tariffs imposed by the Trump administration on lumber, steel and aluminum imports to protect domestic industries from what it says is unfair foreign competition.

The government has also slapped 25% duties on $ 34 billion of Chinese imports and President Donald Trump this week threatened 10% tariffs on $200 billion of Chinese

“Odds are that the tariffs will begin to boost import prices,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “The inflationary impact of the steel and aluminum tariffs has been modest, partly because a number of countries initially were exempt, but that has changed.”

The Labor department said import prices dropped 0.40% last month, the largest decline since February 2016, after jumping 0.90% in May. Economists polled by Reuters had forecast import prices edging up 0.10% in June.

In the 12 months through June, import prices increased 4.3% following a 4.5% advance in May.

Imported food prices dropped 2.6% last month, the biggest decrease since February 2012, after rising 0.40% in May. Prices for imported petroleum fell 0.80% after accelerating 7.4% in May. June’s drop reflected a decline in crude oil prices, which has since reversed.

STRONG DOLLAR

Excluding petroleum, import prices slipped 0.30% in June. That was the largest drop in two years and followed a 0.10% gain in the prior month. Import prices excluding petroleum rose 1.4% in the 12 months through June.

Import prices excluding petroleum were probably held down by the dollar’s 1.6% appreciation against the currencies of the US’ main trading partners in June.

The dollar has firmed 3.8% on trade- weighted basis so far this year, which supports economists’ thesis of a gradual increase in inflation even as the labor market tightens.

An inflation measure tracked by the Federal Reserve for monetary policy hit the US central bank’s 2% target in May for the first time in six years. Inflation is expected to modestly overshoot its target.

“While we think a tightening labor market will keep upward pressure on pricing in the US, the recent strengthening in the dollar, along with declines in various commodity prices related to food and energy, likely depressed the June import price data,” said Daniel Silver, an economist at JPMorgan in New York.

Import prices for nonfuel industrial supplies and materials increased 0.30% in June, driven by higher prices for metals and paper, after rising 0.80% in the prior month.

The cost of imported capital goods fell 0.10% for a second straight month as did prices for imported motor vehicles. Consumer goods prices, excluding automobiles, recorded their biggest drop since November 2016.

While prices for goods imported from China were unchanged in June, they rose 0.50% year on year, which was the largest gain in two years.

“Once the tariffs start feeding through, import prices are likely to reflect them first,” said Blerina Uruci, an economist at Barclays in Washington. “It will then likely feed through with a longer lag and to a smaller extent to producer prices and consumer prices.”

The Labor department also reported that export prices increased 0.30% in June after rising 0.60% in May. Prices for agricultural products fell 1% last month, pulled down by a 2.6% drop in soybean prices. Export prices for corn tumbled 3.1%. —