U.S. import prices recorded their smallest increase in five months in December and underlying imported price pressures were muted amid declining costs for food and consumer goods.
The slowdown in import price growth came despite a weak dollar, which could temper expectations that inflation will pick up this year and keep the Federal Reserve on a path of gradual interest rate increases.
"Fed officials are desperate for more inflation and will take it from any quarter," said Chris Rupkey, chief economist at MUFG in New York. "Today's import price data will worry the Fed doves even more about too-low inflation."
The Labor Department said on Wednesday import prices edged up 0.1 per cent last month after accelerating 0.8 per cent in November. That was the smallest gain since July and was well below economists' expectations for a 0.5 per cent increase.
In the 12 months through December, prices increased 3.0 per cent, slowing from November's 3.3 per cent jump. The dollar lost 7 per cent of its value against the currencies of the United States' main trading partners last year.
Producer and consumer price reports on Thursday and Friday could offer fresh clues on the near-term inflation outlook.
The Fed's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, has undershot the U.S. central bank's 2 per cent target since May 2012. The Fed raised interest rates three times in 2017 and has forecast three rate hikes this year.
U.S. financial markets were little moved by the data as investors digested a report from Bloomberg News that Chinese officials have recommended the country slow down or halt its purchases of U.S. securities. China is the largest foreign holder of U.S. government debt.
The yield on the benchmark 10-year U.S. Treasury note jumped to a 10-month high, while the dollar fell against a basket of currencies. Stocks on Wall Street were trading lower.
Last month, prices for imported petroleum rose 2.0 per cent after surging 8.1 per cent in November. Import prices excluding petroleum fell 0.2 per cent, reversing a 0.2 per cent gain in November. Import prices excluding petroleum rose 1.3 per cent in the 12 months through December.
"Our expectation for the dollar to decline further, along with another year of decent global growth, should lead non-fuel import prices to press higher this year," said Sarah House, an economist at Wells Fargo Securities in Charlotte, North Carolina. "That said, with goods accounting for only a quarter of core CPI, the lift to more closely watched measures of consumer price inflation should be modest."
WHOLESALE INVENTORIES REBOUND
Imported capital goods prices were unchanged in December while the cost of food declined 0.7 per cent.
The price of goods imported from China fell 0.1 per cent in December after advancing 0.3 per cent the prior month. Prices for imports from China dropped 0.2 per cent in 2017 and have not recorded a calendar-year increase since 2011.
The cost of goods imported from Canada and Mexico was unchanged in December after rising 2.3 per cent and 0.1 per cent respectively in November.
The Labor Department also reported that export prices slipped 0.1 per cent in December, declining for the first time since June, as agricultural prices fell for a second straight month. Export prices rose 0.5 per cent in November.
They increased 2.6 per cent year-on-year after rising 3.1 per cent in November.
In a separate report on Wednesday, the Commerce Department said wholesale inventories rebounded 0.8 per cent in November, instead of 0.7 per cent as estimated last month. That followed a 0.4 per cent drop in October.
The component of wholesale inventories that goes into the calculation of gross domestic product – wholesale stocks excluding autos – also rose 0.8 per cent in November, suggesting inventories could be a small drag on GDP in the fourth quarter.
Inventory investment contributed almost eight-tenths of a percentage point to the economy's 3.2 per cent annualized growth pace in the third quarter. The Atlanta Fed raised its fourth-quarter GDP growth estimate by one-tenth of a percentage point to a 2.8 per cent rate after the wholesale inventory data.
Sales at wholesalers shot up 1.5 per cent in November after increasing 0.8 per cent in October. At November's sales pace it would take wholesalers 1.24 months to clear shelves, the fewest since November 2014, down from 1.25 months in October.