U.S. Import Prices Up

Overall import prices increased 0.2% last month following two months of sharp decline and compared to Consensus expectations for no change.

The increase occurred despite a 1.6% decline in the prices of petroleum imports after October's 10.1% plunge, which was deeper than initially reported. So far in December the price of Brent crude oil has risen roughly four dollars from the $59.36 per bbl. averaged in November.

Less petroleum import prices reversed the October decline with a 0.7% increase. During the last ten years there has been a 66% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices. The correlation is a lower 47% against a broader basket of currencies.

Prices for nonoil industrial supplies & materials reversed all of the prior month's decline with a 2.9% (1.7% y/y) increase. Prices for nondurables less petroleum jumped 6.5% (-10.9% y/y) in November following several months of decline this year. Prices for durable industrial supplies & materials (14.7% y/y) were strong early this year but m/m price gains have evaporated. These prices are unchanged since June.

Capital goods prices were unchanged for the fourth straight month (0.2% y/y) and excluding a 0.1% (-3.6% y/y) increase in computers, capital goods prices also were unchanged (2.0% y/y) in November. Prices for nonauto consumer goods additionally were unchanged (1.1% y/y).

Export prices rose 0.4% after two months of decline as nonagricultural commodities prices ticked up 0.1% (3.4% y/y) and agricultural export prices surged 4.4% (10.4% y/y).

The Adjustment of Global External Imbalances: Does Partial Exchange Rate Pass-through to Trade Prices Matter? from the Federal Reserve Board is available here.

The Internationalization of the Dollar and Trade Balance Adjustment from the Federal Reserve Bank of New York can be found here.

Four Central European countries reported their October current account results during the day yesterday, December 13. Yesterday in this commentary, we noted that the improvement in Japan's surplus in the month resulted from lower petroleum imports, which were augmented by complementary advances in other current account components. Today, we see that for Poland, Bulgaria, Slovenia and Serbia, developments in those other current account items – services, income and transfers – helped during the summer to mitigate the impact on the current account of larger petroleum imports. But this counterbalance can't be counted on every month and sometimes such increases in merchandise trade deficits are enlarged.

Poland is a good example: its current account deficit widened to $1.23 billion in October from just $82 million in September and $940 million a year ago. As seen in the graph, in most months, the trade portion is only about half the total current account balance. The deficit on income, particularly rising income payments abroad, make for a more complex current account situation.

In Bulgaria, the current account deficit has been steady the last three months at just over $500 million, even as imports of goods have fallen from their August peak of $2,139 million to $1,896 billion. Goods exports also fell and the net on services, generally a surplus in Bulgaria, declined to virtually zero. The moves are small, but they still indicate the intricacy of international trade and financial flows.

Serbia's current account position receives considerable support from transfer payments. As seen in the graph, the deficit on goods and services is heavily offset by transfer receipts. As we point out here, though, the flows do not come in lockstep, so in October transfers went down at the same time as the goods and services balance.

Finally in Slovenia, the trade deficit is offset to some degree by a continuing small surplus in services, although income accounts generally show net outflows and transfers are erratic in both directions.