Bloomberg News

Import Prices in U.S. Decrease for the First Time in a Year

July 13, 2011

(Updates with economist comment in fourth paragraph and market prices in fifth.)

July 13 (Bloomberg) -- Prices of goods imported into the U.S. dropped in June for the first time in a year as oil and food expenses retreated.

The 0.5 percent fall in the import-price index followed a revised 0.1 percent gain in May, Labor Department figures showed today in Washington. Economists projected a 0.6 percent decrease for June, according to the median estimate in a Bloomberg News survey. Prices excluding petroleum fell 0.2 percent, the first decline since July 2010.

Falling costs will benefit companies like Nike Inc. and Hanesbrands Inc. that are dealing with more expensive inputs eating into margins. Today’s report supports Federal Reserve Chairman Ben Bernanke’s forecast that elevated commodity costs will moderate as supply constraints wane.

“The drop is really reflective of what we’re expecting for the second half of the year with weaker energy and food prices,” said David Semmens, a U.S. economist at Standard Chartered Bank in New York, who correctly forecast the decrease. “This really feeds into the transitory story that you’ve been hearing from the Fed.”

Stock-index futures held earlier gains after the report as China’s economy grew faster than forecast and investors waited for Bernanke to testify before Congress. The contract on the Standard & Poor’s 500 Index maturing in September rose 0.4 percent to 1,316.3 at 8:35 a.m. in New York. Treasury securities dropped, sending the yield on the benchmark 10-year note up to 2.93 percent from 2.88 percent late yesterday.

Survey Results

Projections for import prices ranged from decreases of 1.5 percent to increases of 0.2 percent, according to the Bloomberg survey of 50 economists.

Compared with a year earlier, import prices rose 13.9 percent, the biggest 12-month advance since August 2008, today’s report showed.

The cost of imported petroleum fell 1.6 percent from the prior month, the largest one-month drop since June 2010. Even with the decrease, the cost was still up 50 percent from a year earlier.

Excluding all fuels, import prices decreased 0.1 percent from the prior month and were up 4.8 percent from June 2010. The 12-month gain was the biggest since October 2008.

Food Costs

Imported food was 1.9 percent cheaper last month, the largest decline since February 2009. A 2.6 percent drop in unfinished metals also helped hold down non-fuel import costs.

Rising costs for automobiles limited the overall decline in prices. Costs of imported automobiles, parts and engines climbed 0.3 percent, and were up 2.9 percent over the past 12 months. It was the biggest yearly gain since August 2008.

Consumer goods excluding vehicles showed a 0.1 percent advance after increasing 0.3 percent in May.

Bernanke told reporters on June 22 that Fed officials anticipate “inflation will subside in coming quarters to levels at or below its mandate-consistent rate.”

Policy makers were divided on whether the economy needed additional stimulus, minutes of the central bank’s June 21-22 meeting showed yesterday. Some members said a further slowdown in growth would signal a need for additional support, while others said the growing risk of inflation would require withdrawing stimulus sooner than currently anticipated.

The Fed’s preferred price gauge, which excludes food and fuel, rose 1.2 percent in May from a year earlier. Fed policy makers aim for long-run overall inflation of 1.7 percent to 2 percent, according to their June forecast.

Input Costs

U.S. companies are, nonetheless, feeling the effects of more expensive goods. Input cost inflation and air freight expenses will reduce gross margins by at least 300 basis points for the first quarter of fiscal year 2012, Donald Blair, chief financial officer of the Nike, the world’s largest sporting- goods company, said during a June 28 call with analysts.

“There are rising costs as we know for raw materials, energy and labor, which is sparking inflation in world economies,” Mark Parker, president and chief executive officer of the Beaverton, Oregon-based company, said during the call.

High-priced cotton will “work its way through the supply chain,” according to Richard Noll, chairman and chief executive officer of Hanesbrands, maker of Hanes underwear and the Wonder Bra. “I don’t see this big spike up and this drop down,” he said during a June 21 conference call.

Country Breakdown

The cost of goods from China climbed 0.1 percent, the smallest gain since September, while those from Japan were little changed, the report showed. Goods from Latin America fell 1.1 percent, and those from the European Union increased 0.1 percent. Prices of Canadian imports dropped 1 percent, and goods from Mexico fell 2.2 percent, the biggest decline since November 2008.

U.S. export prices increased 0.1 percent after advancing 0.2 percent the previous month, today’s figures showed. Prices of farm exports rose 0.7 percent, while those of non-farm goods were little changed.

The import-price index is the first of three monthly price gauges from the Labor Department. Data on producer prices come out tomorrow, and the consumer-price index will be released on July 15.

--With assistance from Chris Middleton in Washington. Editor: Carlos Torres

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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