By Jennifer Yousfi
U.S. import prices reached a record high in January, the Department of Labor reported late last week (Friday). Import prices for January increased 1.7%, more than twice as much as had been expected.
According to a Bloomberg News survey of 52 economists, import prices were only expected to increase 0.5% in January, after a relatively flat December. The unexpected increase pushes the 12-month price increase to 13.7% from the same period a year prior, the largest increase since the data began being tracked in 1982.
The increase in costs was fueled by the soaring prices of food and fuel commodities, items that are typically left out of the Federal Reserve’s key inflation indicator, the core consumer price index. Excluding food and fuel prices, imports only increased 3.6% in the last 12 months including January.
The weak greenback is another reason for soaring import prices as the dollar has dropped almost 8% since the beginning of 2007 when compared to a basket of trade-weighted currencies from major U.S. trading partners.
For the month, the cost of China imports increased 0.8%, and was up 3.3% for the 12-months ended in January. Latin America imports cost 3.6% more, while European Union goods were 1.1% more expensive.
The increase in cost to foreign goods is likely to encourage similar increases in domestic products as domestic manufacturers are faced with the same soaring commodities costs.
Surging prices will force the Fed to carefully balance its dual goals of trying to avoid both a U.S. recession and rampant inflation. For now, many believe economic growth should be at the forefront.
"Growth is still the biggest worry, but inflation concerns are alive," Nigel Gault, chief U.S. economist at Lexington, Mass.-based Global Insight Inc., told Bloomberg News. "The Fed will be cutting interest rates."
News and Related Story Links:
- U.S. Department of Labor:
U.S. Import and Export Price Indexes – January 2008