U.S. inflation outlook brightens on lower import prices and rising consumer sentiment

Import prices, which exclude tariffs, fell 1.4% last month after rising 0.3% in June, the Labor Department said on Friday.

It was the biggest monthly drop since April 2020 and exceeded the 1.0% decline economists expected in a Reuters poll. In the 12 months to July, import prices rose 8.8% after rising 10.7% in June, marking the fourth consecutive monthly decline in the annual rate.

The report followed further tentative indications earlier in the week that inflation had finally stopped rising. US consumer prices remained unchanged in July due to a sharp drop in the cost of gasoline, after rising 1.3% in June, although underlying price pressures remained elevated. Producer prices also fell last month due to lower energy costs.

“The fall in import prices and producer prices supports the thesis that the economy is past peak inflation,” said Jeffrey Roach, chief economist at LPL Financial.

GRAPH: U.S. import and export prices are down sharply

The Federal Reserve is considering raising its benchmark rate for overnight lending by 50 or 75 basis points at its next meeting on September 20-21, as the U.S. central bank battles to cool demand economy as a whole and bring inflation back to its target of 2%. The Fed has raised its key rate by 225 basis points since March.

Imported fuel prices fell 7.5% last month after jumping 6.2% in June. Oil prices fell 6.8%, while the cost of imported food fell 0.9%, the biggest one-month drop since November 2020 and the third consecutive monthly drop.

Excluding fuels and foodstuffs, import prices fell by 0.5%. These so-called basic import prices fell by 0.6% in June. They rose 3.8% year-on-year in July. The strength of the US dollar is helping to contain the prices of basic imports.

The dollar has gained about 10% against the currencies of the main trading partners of the United States since the beginning of the year.

The report also showed export prices fell 3.3% in July after accelerating 0.7% in June. Agricultural export prices fell 3.0%, driven by lower prices for soybeans, wheat and cotton.

Non-agricultural export prices fell 3.3%. Export prices rose 13.1% year-on-year in July after rising 18.1% in June.

GASOLINE PRICE

According to a survey by the University of Michigan, US consumer sentiment improved further in August from the record high reached earlier this summer and the short-term inflation outlook for US households has eased again due to the sharp decline in gasoline prices.

The survey’s preliminary reading of the Overall Consumer Sentiment Index for August came in at 55.1, up from 51.5 the previous month. It had hit a record high of 50 in June.

August’s preliminary reading was above the median forecast of 52.5 among economists polled by Reuters.

GRAPHIC: UMich

The survey’s one-year inflation forecast fell from 5.2% to 5.0%, its lowest level in six months, while the survey’s five-year inflation forecast fell from 2. 9% to 3%, thus remaining within the range that prevailed last year.

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