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

Source: Thinkstock

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.”

Libyan supplies are down to about 100,000 barrels per day from 1.4 million a year ago, as rebels have occupied oil fields and major export terminals, and tensions between the warring groups and the government continue, according to CNN Money.

Apart from an increase in fuel prices fuel prices, nonfuel import prices contracted 0.1 percent in June, while they remained unchanged in April and May. In June, lower foods, feeds, and beverage prices, and lower prices for nonfuel industrial supplies and materials led the decline in overall nonfuel import prices. Food, feeds, and beverage import prices contracted 1.7 percent between May and June.

The data suggest that global demand has remained lackluster. Prices for U.S. exports decreased 0.4 percent in June after a marginal 0.1 percent increase in May. The consensus was that exports would grow between 0 and 0.4 percent in June. The decline in export prices was seen in both agricultural as well as non-agricultural prices. Export prices rose a meager 0.2 percent for the year ended in June.

Agricultural export prices fell 1.8 percent in June, led by a 11.2 percent drop in wheat prices, a 7.5 percent fall in fruit prices, and an 8.1 percent decrease in corn prices. Agricultural prices decreased 1.2 percent over the past year. As more and more importing economies in Europe and Asia become self-sufficient in agricultural production, demand for American agricultural products has declined.

The decline in export prices of nonagricultural industrial supplies and materials sharpened to 1 percent in June following a decrease of 0.1 percent in May. A 1.5 percent drop in fuel prices, a 3.9 percent decline in gold prices, and a 0.6 percent decrease in chemicals prices contributed the most to the overall drop in nonagricultural industrial supplies and materials prices in June.

Talking specifically about bilateral trade, import prices from China and Japan remained unchanged in June. But prices for imports from Japan fell 1.6 percent from June last year. Higher petroleum prices pushed import prices from Canada up 0.6 percent in June, indicating that U.S. is trying to diversify its source of fuel oil imports.

The gap between U.S. imports and exports of goods and services narrowed 5.5 percent to $44.4 billion in May from $47 billion in April, according to data published by U.S. Bureau of Economic Analysis on Thursday. But demand as measured by level of prices still remains fragile.

More From Wall St. Cheat Sheet: