Non-Fuel Imports
Import prices excluding fuel fell 0.7 percent in
January, the biggest decline outside of a recession in records going back to
2002, as the rising dollar started to trickle through the data. While a boon to
households, weakening inflation toward mid-year poses a challenge for Federal
Reserve policy makers around the time they are projected to begin lifting
borrowing costs. Prices at the consumer level will probably follow suit as
retailers mark down merchandise to remain competitive. Blackberry Display Picture, Find Here!
Officials will need to decide if the rapidly improving
job market warrants raising the benchmark interest rate for the first time
since 2006, or should lower prices mean they hold off to allow the economy to
accelerate further.
The Fed’s preferred measure of inflation tied to
personal consumption expenditures hasn’t been above its 2 percent goal since
March 2012. In January, the gauge was up just 0.2 percent from a year earlier,
the least since October 2009, reflecting the plunge in fuel costs, according to
the Commerce Department.
Core Prices
The measure will slide to around 1 percent by
mid-year, David Mericle and Chris Mischaikow, economists at Goldman Sachs in
New York, project. The downward pressure is showing up elsewhere. The price
index that excludes fuel and food, known as the core rate, rose 1.3 percent in
the 12 months to January, matching the smallest year-to-year advance since
March 2014.
The data so far capture “at most half” of the eventual
downdraft from oil and the dollar, with the largest effect “likely to be seen
around mid-2015,” they wrote in a Feb. 20 research note. “A substantial amount
of pass-through is still likely in the pipeline,” the economists wrote.
“The aggregate effect would remain sizeable into 2016” should the
trade-weighted value of the dollar continue to appreciate. Barclays’s Gapen and
Oxford Economics’ Daco project the greenback will reduce year-over-year
inflation by 0.2 percentage point. Economists at JPMorgan Chase forecast the
effect will be twice as large. The dollar strengthened against all 31 of its
major peers last year and is up about 9 percent so far in 2015.
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