U.S. Import Prices Fall

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. import prices unexpectedly fell in March, pulled down by decreasing costs for energy products. This is the latest indication that inflation was subsiding before President Donald Trump’s sweeping tariffs came into effect.

The report from the Labor Department on Tuesday added to March’s benign consumer and producer prices data. Economists expect tame readings in March regarding the key inflation measures tracked by the Federal Reserve for its 2% target.

> “There is likely to be a very painful and costly transition for the U.S. economy as Trump 2.0 tries to turn back the clock and go back to making things in America,” said Christopher Rupkey, chief economist at FWDBONDS. “Import prices are not adding much to inflation for now, but the future outlook remains very much in doubt and not in a good way.”

Import prices dipped 0.1% last month, marking the first decline since September, after a downwardly revised 0.2% gain in February, according to the Labor Department’s Bureau of Labor Statistics. Economists had forecast import prices to remain unchanged following a previously reported 0.4% increase in February.

Over the 12 months through March, import prices advanced 0.9% after an increase of 1.6% the prior month.

The import price data cemented expectations that the Personal Consumption Expenditures (PCE) price index excluding food and energy edged up 0.1% in March, slowing the annual increase in so-called core PCE inflation to 2.6% from 2.8% in February.

The White House’s import duties campaign has triggered a damaging trade war with China, plunging financial markets into turmoil. Investors are fearful of high inflation coupled with tepid growth or even a recession.

Minutes from the Federal Reserve’s March 18-19 meeting showed policymakers nearly unanimous that the economy faced risks of simultaneously higher inflation and slower growth, known as stagflation.

Inflation and growth fears were amplified by a survey from the New York Fed showing businesses in New York state in April expected worsening conditions over the next six months.

A measure of future general business conditions slumped to its second-lowest reading in the survey’s more than two-decade history. Businesses noted worsening supply availability, with prices paid for inputs and received for goods sold jumping to over two-year highs.

> “It is reasonable to think that the new tariffs, supply chain disruptions, and intense uncertainty around the future state of trade policy are weighing heavily on the sector and likely to push up core goods inflation considerably,” said Oliver Allen, senior U.S. economist at Pantheon Macroeconomics.

CHEAPER FUELS

Stocks on Wall Street were trading higher. The dollar advanced against a basket of currencies after slumping in recent days due to trade policy jitters. U.S. Treasury yields fell.

Financial markets expect the U.S. central bank to resume cutting interest rates in June after pausing in January, with projections of a 100 basis points reduction this year. The Fed’s benchmark overnight interest rate currently ranges from 4.25% to 4.50%.

Imported fuel prices declined 2.3% in March after increasing 1.6% in February. Oil prices have decreased, worrying investors that escalating trade tensions would weigh on global economic growth and hurt demand for fuels.

Food prices edged up 0.1% after being unchanged in the previous month. Excluding fuels and food, import prices remained unchanged for a second straight month, with core import prices rising 1.1% over the past year.

Further increases are anticipated as the dollar has weakened considerably against the currencies of the United States’ main trade partners, falling about 2.6% this year, especially in March and early April as Trump intensified tariffs.

> “The U.S. dollar is at its weakest point since last October, which will further increase costs for producers purchasing goods from abroad,” stated Matthew Martin, a senior economist at Oxford Economics.

Prices for imported capital goods rebounded 0.3% after slipping 0.1% in February. Prices for imported automotive vehicles, parts, and engines fell 0.1%, while imported consumer goods prices, excluding automotives, decreased 0.2%. Prices for imported finished metals related to durable goods increased 1.3%.

> “Any tariffs charged in March, including a 20% tariff on Chinese imports and 25% on iron, steel, and aluminum, are on top of these prices,” remarked John Ryding, chief economic advisor at Brean Capital.

Prices for Chinese imports fell 0.2% after a 0.1% dip in February. They declined 0.9% year-on-year. Conversely, imports from Japan increased by 0.5% and prices rose 1.7% from a year ago. The cost of goods imported from the European Union remained stable. Prices for Canadian imports plummeted 1.5%, while those from Mexico dipped 0.3%.

The report also noted that export prices were unchanged in March after increasing 0.5% in February. Prices for agricultural exports were flat as higher soybean prices offset declines in wheat and rice. Nonagricultural export prices dropped 0.1% due to lower prices for industrial supplies and nonagricultural foods, but prices for motor vehicles, capital, and consumer goods exports rose.