The Doves May Be Right: Trade Prices Suggest Demand Is Still Fragile

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The latest data on import and export prices show that there is still enough room for the Federal Reserve to keep monetary policy in accommodative mode. According to data released by the U.S. Bureau of Labor Statistics on Tuesday, import-led inflation remained soft in June, an indication that consumer demand is still vulnerable.

The price level of goods imported into U.S. rose 0.1 percent on the month in June and 1.2 percent on the year, according to the BLS. The monthly increase was, somewhat unsurprisingly, led by higher fuel prices — domestic demand for oil tends to peak in May and June thanks to summer driving. Prices for imported fuel increased 1.2 percent on the month and 5.2 percent on the year, the largest increase since March 2012. The increase in overall fuel import prices was led by a 1.4 percent rise in petroleum prices.

Geopolitical tensions in Iraq have threatened supply, and as a result the price of crude oil has been pushed up to $107 per barrel, its highest level since September 2013. A 6.4 percent rise in petroleum prices and a 9.6 percent increase in natural gas prices drove the 5.2 percent 12-month advance in overall fuel prices in June, BLS data showed.

“The driver [of prices] has been, what if [insurgents] get to the south, which is where the bulk of Iraq’s production and exports are, and what if we see disruptions there?” Amrita Sen, chief oil analyst at Energy Aspects, told CNN Money. “Seasonally we are coming to the peak demand period. We know that Libya is already off line and this is why there is such impetus for an upward movement in oil prices now.”