The Import of Import Prices' Slowing Decline

One could be excused for concluding that the decline in import prices has bottomed.
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Charity, Chastity, Prudence and Hope

JACKSON HOLE, Wyo. -- The July

import price indices

were

released last week.

Overall non-oil import prices, which dropped 3.1% last year, were falling at a 1.4% year-on-year rate as of July. The prices of non-oil goods coming from the Asian NICS, too, are now falling not nearly as fast as they were last year -- 3.6% against 8.2% -- and the prices of non-oil goods coming from Japan are now posting year-on-year increases for the first time in four years.

One could be excused, then, for concluding that the decline in import prices has bottomed.

Why does that matter?

Recall the following

Meyer

quote from a few months back.

Important sources of restraint on inflation in the current episode have come from the decline in energy prices over 1997 and 1998; the appreciation of the dollar over the three years through mid-1998 and the resulting decline in non-oil import prices; sharper-than-previous declines in computer prices over the past three years; and a slower rate of increase in health care prices, including the cost of health care insurance. Given that all of these developments have at best a transitory effect on inflation, as the inflation benefits of the shocks dissipate or as the shocks reverse, inflation is likely to rise somewhat. Indeed, virtually every forecast projects a modest rise in broad measures of U.S. inflation this year, reflecting the dissipation or reversal of favorable supply shocks, most importantly the reversal in the path of oil prices, the stabilization of commodity prices and non-oil import prices, and some rebound in health care costs.

And then consider each of those supply shocks in turn.

Energy prices fell 3.4% in 1997 and then another 8.8% last year.

They are

rising at a 3.3% rate now.

The trade weighted value of the dollar rose 2.5% in 1996 and then another 4.3% in 1997 and then another 7.5% last year.

It is

falling at a 0.4% rate now.

Non-oil import prices are mapped in the table above. And, on a related note, the

Journal of Commerce

(or

JOC

) index fell 4.2% in 1996 and then another 6.8% in 1997 and then another 10.5% last year.

It is falling at a 2.3% rate now.

Computer prices are still falling at faster and faster rates.

Medical-care price increases decelerated from 9.6% in 1990 to 2.8% in 1997.

Then they accelerated to 3.4% last year, and they are rising at a 3.5% rate now.

Oil prices fell 29% in 1997 and then another 37% last year.

They are rising at a 63% rate now.

Private Helicopter

So. What's the point here?

Is the point that consumer price inflation is set to bust out to the upside?

Uhh ... no. That isn't the point. That isn't the point at all.

The point is that the shocks that helped to produce the very kind consumer price performance we've seen over the past few years are no longer helping as much as they once were (and some are even now hurting).

That's the point.

Take from it what you will.

Side Dish

Oooooh yes. Yes indeed. Do check out the first

piece from our newest columnist.

He's

Portuguese

and his work is solid.

We'll take over this damn site yet.

Best Shot?

The.

Whiskey.

Espresso.

Gun wedding.

The one heard round the world.