Soaring Import Prices Paints a Troubling Picture

[Omaha Steve]

http://seekingalpha.com/article/72074-soaring-import-prices-paints-a-troubling-picture

posted on: April 13, 2008 |

Friday's update on import prices once again paints a troubling picture on pricing pressures.

The U.S. Labor Department reported that import prices jumped 2.8% last month. That's the highest since last December's unnerving 3.2% spike. More troubling is the fact that the 2.8% rise in March is in the upper range for monthly changes going back to the 1980s. Adding insult to injury, import prices soared 14.8% measured over the 12 months through last month, as our chart below shows. That's the highest 12-month rate in the Labor Department's archives, which goes back to 1982 as per the web site.



The "good news," if we can call it that, is that much of the rise in import prices was due to higher energy costs. And energy prices can't rise forever - we hope. In any case, the 14.8% surge in import prices over the past year falls to 5.4% after stripping out energy. But the lesser rise in non-petroleum import prices is hollow comfort once you recognize that the 5.4% annual pace is the highest since the 1980s. The basic trend, in short, is not in doubt, no matter how you slice the import-price pie.

How troubling is a 5.4% rise in non-petroleum imports? In search of an answer, consider that inflation generally in the U.S. is climbing by 4.0%, based on the annual rise in consumer prices through February. And the nominal (pre-inflation adjusted) annualized pace of economic expansion in 2007's fourth quarter was 3.0%. In other words:

# Non-petroleum import prices are advancing at a roughly 33% faster rate than general inflation.
# Non-petroleum import prices are rising 80% faster than the nominal growth of GDP.

And if we add energy back to the mix, import prices are, well, let's just say they're skyrocketing.

It should be obvious to everyone that the current scenario can't last. Something, as they say, has to give. Among the possible scenarios are:

# The Federal Reserve will say enough's enough and pull a Volcker and hike rates. Of course, at this point in the cycle that decision would exacerbate the already weakened economy, although it probably would take the edge off import prices by more than a little.

# The economy will weaken of its own accord, doing the Fed's dirty work without the political blowback that would arise if the central bank took the lead. In that case, tempering import prices seems inevitable if energy costs merely stay flat, although a drop of oil prices to, say, $80 a barrel would have a huge soothing effect on import price calculations in the near term.

FULL story at link.

[yourout]

1. Does the dollar tanking have anything to do with the increase?

Either way Bushco is responsible.

[lovuian]

2. no more cheap goods anymore

party is over

this means Wages need to go UP UP UP

[shanti]

3. and if they don't

banana republic, here we come!

[ThomWV]

4. Well, its about god dam time. Maybe now we can start producing shit in this country again.

Now that the price of imports is up maybe, just maybe, american workers can be competitive again.