In a big shift, U.S. export and import prices decrease in February

Monthly prices for import and export prices declined in February. For imports, it was the first decline in seven months, whereas for exports, it was the first decline in five months.

Both import and export prices have been growing in the past year, with both indices rising considerably after July 2009.

by Anjana Sundaram
March 16, 2010

The price of both imported and exported goods fell in February, according to a report released by the U.S. Department of Labor Tuesday. The downward trend of prices, coupled with the dollar’s recent appreciation, indicates low inflationary pressures from abroad.

The U.S. Import Price Index fell 0.3 percent in February, more than the anticipated decline of 0.2 percent from analysts surveyed by Bloomberg LP. The monthly drop in import prices, which was the first since last July, was driven by a decline in fuel prices.

“The reduction in the price of imports is driven primarily by what happened to the price of oil. Consumers are sensitive to the price of oil, as the recession is still in people’s minds and they are cautious about increasing prices and cutting back demand,” said Stephen Parente, an economist at the University of Illinois.

Despite last month’s decline, the overall import price for the year ended Feb. 28 increased 11.2 percent, compared with a decrease of 12.7 percent in the year-earlier period.

Fuel import prices decreased 1.9 percent in February, a swing from a 4.9 percent rise in January. The two main factors impacting fuel prices were petroleum and natural gas. This month, the 2.6 percent increase in natural gas prices offset the 2.2 percent decline in petroleum prices. Over the past year, petroleum increased by 81.3 percent and natural gas rose by 16.3 percent.

Prices for nonfuel imports rose for the seventh consecutive month due to higher prices for industrial supplies such as metals and lumber. However, prices for food, animal feed and beverages declined during the month. “We had seen ex-fuel prices pick up a little bit with the strength of the dollar in the recent months. Broadly speaking, a lot of prices outside of energy are trending lower,” said Julia Coronado, an economist at BNP Paribas SA.

Export prices also unexpectedly fell in February by 0.5 percent after a 0.7 percent rise in each of the prior two months, marking the first price decline in five months. Lower agricultural prices comprised 65 percent of the overall decline. In the past 12 months, overall exports rose 3.1 percent.

“Agricultural prices have been on a very strong upward trend and now it is being moderated. A lot of the prior strength was driven from Asia…there were some concerns that China might have an inflation problem and end up tightening policy which led those prices to ease back a little bit,” said Coronado.

Prices for agricultural exports fell by 3.8 percent in February, a dramatic swing from the 1.3 percent advance in January. Prices for soybeans, corn and wheat contributed the most to the price decline. For the overall year ended Feb. 28, agricultural prices still rose by 2.3 percent because of a 33 percent rise in nut prices and a 29 percent increase in cotton prices.

Economists seem to agree that imports and exports should eventually rise in the long term as the economy recovers. “The trend will continue to see both rise and we will see an increase in the U.S. trade deficit. The trend seems to show that both have been increasing since July,” said Parente.

However, the short term tells a different story. “I think that energy prices are going to bounce around. I don’t think they are going to go up a whole lot just because of the weakness in the global economy. Other prices outside of energy will be under downward pressure because the weakness in the economy will reduce purchasing power,” said Coronado.

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