Import prices rose more slowly in February. That could help bring down inflation.
Import prices rose more slowly in February. That could help bring down inflation.
Inflation seems to be taking its sweet time coming down to the Federal Reserve’s 2% target. The consumer price and producer price index reports this week both showed that inflation picked up in February on a month-to-month basis.
But even though the inflation battle is dragging on, there are still signs of progress. The Labor Department reported Friday that the price of imported goods rose 0.3% in February after rising 0.8% in January. Can disinflation at the import level help bring down inflation overall?
A big reason import prices went up in February was because of rising energy costs. But the picture looks different when you set those costs aside, said Meagan Schoenberger, senior economist at KPMG.
“Everything else outside of petroleum, oil and gas, fuel for industry, all of that did slow quite a bit,” she said.
The price of imported consumer goods rose at a slower pace in February, Schoenberger said. Same with the price of imported vehicles.
“Orders are down quite a bit, stocking up has slowed down significantly. So that’s good news, particularly for the new car prices that we can expect down the pipeline,” she said.
That’s because prices at the import level can affect prices that show up in other inflation data.
CPI can be affected by import prices, whether they’re picking up or slowing down, said Erica Groshen, a senior economic adviser at Cornell University’s School of Industrial and Labor Relations. She’s also the former commissioner of the Bureau of Labor Statistics, which puts together the import price index and the consumer price index.
“If you have an importing company, like Ikea or something like that, right, you can expect that a lot of price changes are going to be passed through to consumers pretty readily,” she said.
Overall, import prices are down almost 1% from the same time a year ago. Jay Bryson, chief economist at Wells Fargo, said that’s welcome news for the effort to bring down inflation.
The thing is, Bryson said, import prices are not the big problem right now.
“The big problem with inflation today, being its general stickiness, is in terms of the service sector,” he said. As in the price of medical care. Insurance. Rent. Haircuts.
Bryson said two-thirds of consumer spending goes to services, and those aren’t really something we import.
“It’s not like I’m going to go to Mexico to get my haircut,” he said.
And to bring down services inflation, Bryson said we’ll need to see more of a slowdown in wage growth and housing prices.
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