ECM: Lower than Expected Rise in US Import Prices, Export Prices Unchanged
US import prices rose 0.2% in March following a revised 0.4% decline the previous month. Although this was the first monthly increase since June 2015, the gain was much smaller than the 0.9% gain expected by markets. There was also a 6.2% annual decline and the Fed will still be concerned over underlying low inflation trends.
The gain in import prices was led by a 4.9% gain in fuel costs, while non-energy prices fell again and have not registered a gain since July 2014.
As far as export prices are concerned there was no change in March following a revised 0.5% decline the previous month as agricultural export prices fell sharply by 2.5% over the month with a 11.1% annual decline. Non-agricultural prices did move higher for the first time since May 2015 with a 5.6% annual decline.
The risks of inflation being too low has been a consistent Federal Reserve policy concern, with notable concerns surrounding inflation expectations. Given that energy and commodity prices have recovered slightly further and the dollar is significantly weaker, there are concerns that the US import deflationary pressures should gradually ease, but the weaker than expected data for March means that the all clear will certainly not be sounded at the Fed’s April FOMC meeting, which will limit the scope for any shift to more hawkish rhetoric.
The export-price data continues to suggests that the stronger dollar seen since mid 2014 is still having a significant negative impact on exporters, although there are substantial lags involved and a clearer trend will only emerge slowly over the next few months with a gradual improvement likely. The Fed, at this stage, will still be concerned over the dollar’s impact on net exports and the wider economy.
The dollar dipped lower following the release with USD/JPY dipping to around 108.25 from 108.30, while EUR/USD was trapped near 1.1400 under the influence of a large technical option expiry. US Treasury prices ticked higher following the data with the benchmark 10-year yield just below 1.755% having been above 1.760% at the US open.
