Deflationary Pressures Unabated; Another One-Hit Wonder; Transitory Tales

Another One-Hit Wonder

In spite of counterproductive attempts by the Fed and Central Banks to foster price inflation, debt overhang has stymied those efforts, at least in regards to consumer prices and import/export prices.

Last month, following a surge in gasoline prices, import and export prices did rise a bit, but as with retail sales, the import/export price report was another "one-hit wonder".

Missed Boat Again

Bloomberg Econoday Economists again missed the boat.

Cross-border deflationary pressures are not abating as import prices fell 0.1 percent in June with export prices down 0.2 percent. Year-on-year, import prices are down 10.0 percent with export prices down 5.7 percent. These rates are not showing any improvement from prior months with import prices not even getting much of a lift from the bounce back in petroleum prices as the ex-petroleum reading fell 0.2 percent in the month. Year-on-year, ex-petroleum import prices, and this is a core reading, are down 2.6 percent.

Outside of monthly gains for petroleum components, negative signs sweep both the import and export columns with agricultural exports, at minus 1.5 percent in June, extending a deep run of declines. Year-on-year, agricultural export prices are down 16.7 percent in what is not good news for the nation's farming sector. A look at finished goods categories shows no price strength anywhere with import prices for capital goods, at a year-on-year minus 1.7 percent, and export prices for consumer goods, at minus 1.9 percent, especially weak.

By country, import prices fell 0.5 percent with the NICs, down 0.4 percent with Japan, and down 0.1 percent with China. Prices rose 0.4 percent for Canada, up 0.2 percent for the EU, and up 0.1 percent for Latin America.

The strength of the dollar is pulling down import prices but the decline in export prices points to a lack of global price pressures. This report is a reminder that inflation is not yet picking up steam toward the Fed's 2 percent goal and hints at similar results for this week's later releases of producer and consumer prices.

Import-Export Prices



Crude Oil



From Mid-March to early May, the price of crude rose from $44.00 to a high of $63.61. Since then, the price of crude is down by about 17%.

Gasoline Futures



From Early March until Mid-June, gasoline futures rose from $1.70 to $2.15. Since then, gasoline futures have fallen about 10%.

Deflationary Pressures Unabated

Economists keep expecting consumers to spend elsewhere "what they save" on gasoline. Of course the idea that one can "save" this way is totally absurd.

In practice, consumers have chosen to save, the only way they really can (by not spending in the first place and instead paying down debt).

This is a consequence of a consumer that is still over-leveraged in debt.

And as I have pointed out, it is only sub-prime auto sales that has propped up the consumer economy. (See Retail Sales Unexpectedly Sink Below the Lowest Economist's Estimate).

Transitory Tales

Today's import/export and retail sales reports are more flies in the ointment of the expected September rate hike thesis.

The Fed insists the negative first quarter GDP is "transitory".

Second quarter GDP will indeed rebound, but not as much as previously expected. Third quarter and fourth quarter will tell the story.

Will the Fed hike before we know how the "transitory tale" ends?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com