U.S. Import Prices Rebound; Export Prices Fall

U.S. import prices unexpectedly increased in December after five straight monthly decreases, boosted by higher costs for natural gas and food, suggesting that the fight against inflation would be protracted even as consumer prices are trending lower.

Import prices rebounded 0.4% last month after declining 0.7% in November, the Labor Department said on Friday. Economists polled by Reuters had forecast import prices, which exclude tariffs, falling 0.9%. In the 12 months through December, import prices increased 3.5% after rising 2.7% in November.

"The Fed's battle with inflation is likely to go on longer than markets think as the tailwinds from prices of imported goods coming into the country have turned back into headwinds," said Christopher Rupkey, chief economist at FWDBONDS in New York.

The government reported on Thursday that monthly consumer prices fell for the first time in more than 2-1/2 years in December. Inflation is retreating as the Federal Reserve's aggressive interest rate increases cool demand, and bottlenecks in the supply chain ease.

Subsiding inflation is seen allowing the U.S. central bank to further scale back the size of its rate hikes next month.

The Fed last year raised its policy rate by 425 basis points from near zero to a 4.25%-4.50% range, the highest since late 2007. In December, it projected at least an additional 75 basis points of hikes in borrowing costs by the end of 2023.

Imported fuel prices rose 0.6% last month after falling 3.7% in November. The first monthly rise since June 2022 reflected a 59.5% surge in natural gas prices, which offset a 2.7% decline in petroleum prices. The cost of imported food rose 0.4%.

CORE IMPORT PRICES UP

Excluding fuel and food, import prices rebounded 0.4%, posting their first monthly gain since April 2022. These so-called core import prices dropped 0.6% in November.

December's increase in core import prices was despite the dollar strengthening against the currencies of the United States' main trade partners. The dollar gained 5.6% on a trade-weighted basis last year. But the greenback has struggled early in the new year, which could keep core import prices up.

"Future inflation developments will be influenced in part by changes in the dollar, and the recent dollar depreciation likely has put some upward pressure on import prices," said Daniel Silver, an economist at JPMorgan in New York.

There were also gains in prices of imported capital goods and motor vehicles. Prices of consumer goods, excluding automotives, rebounded 0.2%. They were driven by both long-lasting manufactured goods and nonmanufactured consumer goods.

The cost of imported goods from China dipped 0.1%, pulled down by lower chemical prices. There were also decreases in the prices of imports from Canada and Mexico. But prices of Japanese imports edged up 0.1%.

The Labor Department also reported that export prices dropped 2.6% in December, declining for a sixth straight month. Prices for agricultural exports fell 2.4%, pulled down by lower prices for corn, soybeans, meat and wheat. Prices for vegetables and fruit exports rose.

Nonagricultural export prices fell 2.7%, reflecting lower prices for industrial supplies and materials, which offset higher prices for capital goods, automotive vehicles and nonagricultural foods.

Export prices rose 5.0% year-on-year, the smallest gain since January 2021, after increasing 6.1% in November.