INDICATOR: August Import and Export Prices

KEY DATA: Imports: Up 0.7 percent; Non-Fuel: Down 0.2 percent; Exports: Up 0.9 percent; Farm: Up 5.1 percent

IN A NUTSHELL: “Except for energy, import costs are tame, but that is little solace to those who commute and have stagnant incomes.”

WHAT IT MEANS: If your income is going nowhere, it is hard to maintain your spending level if prices go up. That is clearly happening with energy, and with chaos in North Africa, the geopolitical risk premium will likely rise, causing prices to go up even further. That is bad news because it is hard for households to lower their energy usage greatly in the short run.

Thankfully, the costs of non-fuel imported products eased in August, led by a sharp decline in food, a moderate reduction in consumer goods costs and a modest fall in capital goods prices. The food price drop, though, might be temporary. The drought will start kicking into prices, and as U.S. prices rise, the costs of foreign imports should follow.

Indeed, there already are indications about how food costs might increase in the surge in U.S. farm export prices. If U.S. companies can get higher prices on international markets, there is no reason to think that foreigners cannot get some higher prices here.

Excluding agricultural products, American companies were able to push through some increases, with manufacturers of products other than capital goods showing some pricing power.

MARKETS AND FED POLICY IMPLICATIONS: The expectations were for a somewhat higher rise in import prices, but that does not mean this was a good report.

Tame food costs will not likely last very long, so consumers will be pressured by rising food and energy prices.

However, the strong dollar should allow foreign manufactured goods prices to remain under control. That is both good news and bad news.

For consumers, that means some of the products they buy will not increase in price and indeed might actually decline, as foreign companies try to make up for weak European demand by shipping well-priced goods to the United States. But that will only put greater pressure on domestic manufacturers.

Meanwhile, the Federal Open Market Committee (FOMC) is meeting and will release a statement and projections tomorrow. The Fed has begun to shift toward looking at top-line, not core, prices, so food and energy now actually matter.

This report will not likely matter a whole lot to the discussion going on, as the concern is inflation going forward and, at least for food and energy, the prospects are not good.

Nevertheless, the desire by some FOMC members to at least give the impression that the Federal Reserve is doing something about weak job growth has raised the likelihood that additional easing will either be announced or very strongly hinted at. I am leaning toward the hint, as that would not lock the monetary authorities into doing anything if the economic data do not deteriorate further.