Prices of U.S. goods, imports decrease by most in two years

By Alex Kowalski

Bloomberg News

WASHINGTON — Prices of goods imported into the United States fell in May by the most in almost two years, reflecting lower costs for fuel and food.

The 1 percent decrease in the import-price index, the biggest since June 2010, follows an unchanged reading in April, Labor Department figures showed today in Washington. The drop matched the median forecast in a Bloomberg News survey. Prices excluding fuel fell 0.1 percent.

Slowing economies overseas may reduce demand for raw materials, holding prices in check while energy costs retreat. A “subdued” inflation outlook gives Federal Reserve officials more room to ease monetary policy to spur U.S. economic growth.

“Price pressures are beginning to ebb,” said Jacob Oubina, a senior U.S. economist at RBC Capital Markets in New York, who correctly forecast the drop in prices. “Slower global growth is influencing a lot of what we’re seeing on the price front. From the Fed’s perspective, that box of disinflationary conditions has already been checked off.”

Projections for import prices ranged from a decreases of 2 percent to 0.5 percent, according to the Bloomberg survey of 45 economists. The Labor Department revised the April reading from an originally reported 0.5 percent drop.

Compared with a year earlier, import prices decreased 0.3 percent, the first decline since the year ended October 2009, today’s report showed. They rose 0.9 percent in the 12 months ended in April.

The cost of imported petroleum fell 4.2 percent from the prior month, the most since May 2010, and was down 2 percent from a year earlier. The price of imported food decreased 0.7 percent.

Prices for imported automobiles dropped 0.1 percent, the first decline this year. Consumer goods excluding vehicles also showed a 0.1 percent price decrease.

Cooling global growth that curbs overseas demand will probably take pressure off commodity prices. The expansion in the 17-nation euro region stagnated in the first quarter from the same time in 2011. China’s economy grew 8.1 percent in the first three months of 2012 from a year earlier, the slowest pace in 11 quarters. India’s GDP rose at a 5.3 percent pace in the first quarter from a year earlier, the slowest in nine years.

“If demand doesn’t hold up, if China demand is weak and European demand is weak then it’s hard to see why we would experience a lot of raw-material inflation the foreseeable future,” said Gary Hendrickson, president and chief executive officer of Valspar Corp.

The Minneapolis-based maker of paints and coatings anticipates low to mid-single digit year-over-year price increases, Hendrickson said during a May 23 investor conference.

The cost of imported goods from China was unchanged in May, while items from the European Union dropped 0.1 percent.

A pickup in the value of the dollar since the third quarter of 2011 may also help make imported goods less expensive. The Dollar Index, which IntercontinentalExchange uses to track the currency against that of six major trade partners including the euro and yen, has increased 12 percent since July 26 through Monday.

The outlook for inflation is “subdued,” and price increases will probably remain at or slightly below the 2 percent level that’s in line with the central bank policy makers’ goal to meet their dual mandate of stable prices and maximum employment, Fed Chairman Ben Bernanke told Congress’s Joint Economic Committee last week. Higher unemployment and retreating oil and gas prices “should continue to restrain inflationary pressures.”

The Federal Open Market Committee, which sets the course of central bank policy, meets next week. The group may address a cooling U.S. expansion, the weakest job growth in a year and a widening crisis in Europe

U.S. export prices decreased 0.4 percent in May, Tuesday’s report also showed, after rising 0.4 percent the previous month. Prices of farm exports climbed 0.7 percent and those of non-farm goods decreased 0.5 percent.

The import-price index is the first of three monthly price gauges from the Labor Department. Data on producer prices come out June 13, followed the next day by the consumer-price index.