Import prices in March rise as oil prices increase
Average import prices rose in March. The rise was strongly buoyed by an increase in oil prices, and was the first rise in nine months. Import prices increased by 0.2 percent in March, according to a Labor Department report. This comes after a 0.4 percent decrease of import prices in February. The March increase was expected to be higher by economists, many of whom put their numbers between 0.9 percent and 1 percent. Still, this is the first increase since last May.
The increase in average import prices is mainly due to the global increase in oil prices. The price of imported oil rose 6.5 percent from a February low. Prices fell steeply in February, but made a quick rebound in March. This was largely due to hopes that a deal would be reached between major petroleum producers to curb production. A deal was not reached, but the planned cut in output still drove prices up.
Import prices for non-petroleum goods actually decreased 0.1 percent from February to March, and are down 2.7 percent this year. From March 2015 to March 2016, non-petroleum prices were down 2.5 percent.
Although import prices increased, they are still generally weak. Import prices are down 6.2 percent this year alone. This continued weakness is due mainly to historically low petroleum prices, a stronger dollar and lagging global growth. Though the dollar weakened during the first quarter, due to the Federal Reserve Bank holding back its planned interest rate hikes in 2016 because of an unexpected lag in global economic growth, it remains historically strong.
This in turn increases the value of the U.S. dollar against foreign currencies, increasing export prices and decreasing import prices. Over the past year, global oil prices have fallen 39.5 percent. These weak prices have been a strong curb on U.S. inflation.
The import of non-fuel industrial supplies and materials advanced 0.5 percent in March, the first one-month increase since the index rose 0.5 percent in July 2014. This is also the largest increase since March 2014. Consumer goods, on the other hand, fell 0.3 percent in March, after a 0.3 percent increase in March.
This was mainly lead by a 1 percent drop in the price index of medical, dental and pharmaceutical materials. An increase of 0.1 percent in automobile prices counteracted this decrease, and represented the first monthly advance for the index since a 0.1 percent increase in July 2015.
A serious concern of U.S. economists is lack of healthy inflation for the U.S. dollar. Many officials believe deflationary pressures of U.S. imports will ease, but the fact that prices rose less than expected in March has implications. It likely means the Federal Open Market Committee will leave interest rates where they are during their April meeting, holding off the scheduled two rate hikes until later in the year.
The Federal Reserve Bank is also likely concerned about the stronger dollar’s affect on net exports, though the average price for exports remained unchanged in March. Still, export prices are down 6.1 percent since last year.