Falling import prices are good news in the fight against inflation
Falling import prices are good news in the fight against inflation
We got a whole bunch of news on the inflation front this week. Consumer prices rose just 0.2% in June, according to the Labor Department, and producer prices were up just 0.1%.
And Friday morning, we learned that imported products were less expensive in June — down 0.2% from the month before and more than 6% below where they were this time a year ago.
How might deflation at the import level affect inflation at the consumer level?
A big part of the import price index is the cost of imported energy. And it is a lot cheaper than it was a year ago.
“A lot of this is driven by a 37% drop in the import prices for fuels year over year,” said Meagan Schoenberger, senior economist at KPMG.
She said we have to keep in mind that oil prices peaked around this time last year. So now, they’re going to look cheap by comparison.
But in the last few months, other imports have become cheaper too.
“Consumer goods, automotives, capital goods — they’re all coming down and softening quite a bit,” Schoenberger said.
That’s because demand for imported goods has been falling.
Look at what’s going on with Chinese manufacturers, said Mary Lovely, a senior fellow at the Peterson Institute for International Economics.
“Their sales slumped by 12% on an annual basis in June. So that’s pretty bad for them,” she said.
And when demand falls, so do prices.
“Just looking at U.S. imports from China, prices declined by more than 1% in June, following a very large decline in May,” Lovely said.
That’s having the biggest impact on the materials American manufacturers use to make things.
“Chemicals, metals and more processed inputs that firms used to produce,” offered Robert Johnson, an economics professor at the University of Notre Dame.
He said those cheaper materials will have a domino effect.
“Lowered prices for imported inputs are going to show up as lowered prices for domestically produced goods, like showing up in the producer price index,” Johnson said.
And after some time, those reductions, he said, will eventually show up in consumer prices too.
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