In August U.S. import prices dropped for the first time in six months on feeble petroleum and food costs. Though the falling trend in slowing as oil prices balance out and the dollar’s rally diminishes. Still, Wednesday’s report from the Labor Department indicated the near-term inflation outlook would remain calm, strengthening the debate for the Federal Reserve to keep interest rates steady in next week’s policy meeting.
Import prices dropped 0.2 percent last month following an increase of 0.1 percent in July. August’s decline was the first since February and was led by a 2.8 percent drop in petroleum prices. Imported petroleum prices dropped 3.6 percent in July. In the last year, import prices dropped 2.2%, the smallest drop since October 2014, following dropping 3.7% in July.
“Most Fed officials expect the gradual climb toward the inflation target to remain intact and the diminishing drag from import price deflation will help, but it’s going to take time,” stated Sam Bullard, a senior economist at Wells Fargo Securities. “We expect the Fed to remain cautious, leaving rates unchanged next week.”
August’s feeble inflation reading added to slower job growth, soft manufacturing and services sectors surveys in cutting the chances of an interest rate hike at the Fed’s Sept. 20-21 policy meeting. Fed Governor Lael Brainard commented on Monday she wanted to see stronger consumer spending data and any indication of advancing inflation prior to raising interest rates. The U.S. central bank lifted its benchmark overnight interest rate at the end of last year for the first time in nearly a decade, but has held it steady since among fears over consistently low inflation. U.S. financial markets were little moved by the data.