Inflation Pressures Subside, Giving Fed More Room to Act

Friday, 10 Aug 2012 12:35 PM

 

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U.S. import prices unexpectedly fell in July for the fourth straight month as costs declined for imported oil, industrial supplies and even many consumer goods, further icing inflation pressures.

Overall import prices dropped 0.6 percent last month, the Labor Department said on Friday.

Import prices have only risen once in the last eight months.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

Analysts had expected import prices would rise 0.1 percent in July, and the decline could give the U.S. Federal Reserve more scope to ease monetary policy if policymakers think the economy needs it.

Still, an increase in the pace of hiring in July has led some economists to think the Fed might not be ready for a new round of bond purchases, a monetary easing strategy known as quantitative easing.

Even with import prices sagging, "people are still going to wonder whether the Fed will embark into another round of quantitative easing," said Robbert Van Batenburg, head of global research at Louis Capital Markets in New York.

Despite the downward trend in prices, analysts pointed out that much of the decline has been due to a drop in the cost of oil.

"At the core level, declines in prices are unlikely to be significantly felt at the consumer level," said Peter Newland, an economist with Barclays Capital in New York.

Prices fell for goods and services bought from most of America's major trading partners, including China, Mexico and the European Union. That could be a sign of the recent cooling in the global economy, which has been largely caused by Europe's debt crisis.

U.S. stock index futures fell, hurt by trade and new bank lending data in China that suggested pro-growth policies have been slow to gain traction and more urgent action may be needed to stabilize the economy. Yields on U.S. government debt also slipped.

Prices of Chinese imports dropped 0.2 percent in July.

The Fed targets annual inflation of 2 percent, and policymakers' preferred measure of inflation showed prices up 1.5 percent in June from a year earlier.

Prices for imported petroleum slipped by 1.6 percent in July. Stripping out fuels and food, import prices were down 0.4 percent.

Many prices for consumer goods fell. Excluding autos, prices for consumer goods were down 0.1 percent.

The Labor Department report also showed export prices rose 0.5 percent last month. Analysts had expected export prices to be flat.

A rise in the price of agricultural goods fueled the increase in export prices, pointing to the impact of the severe drought in the farm belt region of the country. Stripping out agriculture, export prices fell 0.3 percent.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

© 2014 Thomson/Reuters. All rights reserved.

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