US import prices declined more than expected in October

Total US import prices declined 0.5% m/m in October, much softer than both forecast and consensus expectations (-0.1%). Nonpetroleum import prices also fell at a faster pace than we had anticipated, dropping 0.4% m/m (Figure 1). The greater-than-expected decline pushed down the y/y rate of nonpetroleum prices to -3.4% (3.2% prior). The y/y decline in total import prices moderated to -10.5% from the downwardly revised September pace of -11.3%.

All major subcategories of import prices fell with the exception of consumer goods. Consumer goods prices rose 0.1% m/m, pulling the y/y change up to -0.6%, from 0.9% in September. Capital goods prices fell 0.1%, industrial supplies prices dropped 1.4%, and the price of foods and beverages declined 1.0% m/m. Prices of imported autos and parts declined 0.3% m/m and 1.6% y/y.

"We expect import prices to decline further over the medium term as the effects of past dollar appreciation continue to weigh on prices. In addition, we believe that weakness in emerging Asia, especially China, is likely to push down import prices over and above any effect from the appreciation of the dollar. As such, we see the ongoing rapid declines in Chinese producer prices as a downside risk to our forecast", says Barclays.

"In addition, the majority of non-automotive consumer goods are sourced from emerging Asia, we believe the declines in import prices are also likely to pass through to consumer prices. Our expectation of further declines in import prices and the subsequent pass-through to consumer prices is the major driver of the soft consumer price inflation we forecast for next year", added Barclays.