WHAT IT MEANS:
- INDICATOR: September Import and Export Prices
- KEY DATA: Imports: -0.1%; Nonfuel: -0.3%; Exports: -0.7%; Farm: -1.1%
- IN A NUTSHELL: “The disinflationary impact from falling import prices is easing, but it has not gone away.”
The Fed can live with the current state of the domestic economy, even if it continues to be worried about international activity.
But what is causing some members to want to wait before raising rates is low inflation.
Declining energy and commodity costs, coupled with falling nonfuel import prices, have combined to keep inflation well below the Fed’s 2% target. Today’s import price numbers don’t provide a whole lot of support for the belief that inflation will pick up anytime soon.
Import costs fell only modestly In September as energy prices actually rose. That was a change. But excluding petroleum, there are still some decent downward pressures.
Indeed, we saw food, nonfuel industrial supplies and capital good prices ease in September. Vehicle costs were flat and the rise in consumer goods prices was minimal.
Previous declines in energy costs are still working their way through the system, so price declines are likely for a while, even if energy prices keep rising. On the export side, the problems facing the agricultural sector continue as the prices for farm products overseas just keeps going down. Food export prices have fallen by over 14% during the past year and that has to be eating into the farm belt’s income.
MARKETS AND FED POLICY IMPLICATIONS:
It was nice that the import price declines are moderating, but they haven’t turned positive just yet.
The strong dollar is making sure that import prices and thus U.S. inflation remain low. Thus, there is little reason to expect that inflation, at least as measured on a year-over-year basis will move up to 2% soon.
But stable or even slowly rising energy prices will allow monthly changes to become positive and that could provide some basis for the argument that inflation will reach the Fed’s target in due course.
Basically, we don’t know what the Fed will do and when they will do it. Heck, we don’t even know what "it" is.
Minneapolis Fed Bank President Kocherlakota said we should be cutting rates, not raising them. I didn’t realize that the current level of rates was restricting borrowing and therefore economic activity. You learn something new each day.
Anyway, the Fed will likely do nothing at the October 27-28 meeting so the focus of attention is on the October and November jobs reports that come out before the December 15-16 meeting.
They have to be strong if the Fed is to raise rates before the end of the year, as many keep saying is a possibility.
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