US import prices fell broadly by 0.3% in March

U.S. import prices fell broadly in March, a sign that inflation will likely stay low in the coming months.

The Labor Department said on Friday that import prices dropped by 0.3% in March from February – the eighth decline in nine months.

Over the past year prices have fallen by 10.5%, mainly due to the significant decrease in oil prices. This is the biggest yearly drop since the 12% decline in prices in September 2009.

But the slide in March wasn’t because of cheaper oil – as prices have stabilized.

In March non petroleum import prices fell by 0.4%, and has decreased by 2.7% over the past year.

What appears to have been one of the biggest reasons for the drop in recent months is the strong US Dollar, which economists say is driving consumers to spend more on foreign goods.

A stronger US dollar makes foreign goods cheaper in the global market.

Highlights of the U.S. Bureau of Labor Statistics report:

  • Foods, feeds, and beverages prices decreased 1.1% in March, after no change in February.
  • The price index for consumer goods and automotive vehicles each declined 0.3%.
  • Nonfuel industrial supplies and materials prices declined 1.3% in March following a 1.0% decrease in February.
  • Import air passenger fares fell 2.4% in March.

Joshua Shapiro, chief U.S. economist of MFR Inc., said in a note to clients:

“Recent dollar strength indicates that core import prices are likely to be under considerable downward pressure in the months ahead,”

“This will help to keep prices of goods at the consumer level under wraps.”

Meanwhile, the price index for U.S. exports increased in March by 0.1%, after a 0.2% decline in February.

Looks like the Fed won’t be increasing rates for a while

The Federal Reserve is waiting for inflation to pick up before hiking rates because higher inflation is an indicator that the US economy would be strong enough to withstand higher rates.

Last month, Fed Chairwoman Janet Yellen said:

“Some of the weakness in inflation likely reflects continuing slack in labor and product markets,”

“However, much of this weakness stems from the sharp decline in the price of oil and other one-time factors that, in the *FOMC’s judgment, are likely to have only a transitory negative effect on inflation, provided that inflation expectations remain well anchored.”

* The FOMC (Federal Open Market Committee) meets every six weeks and sets US monetary policy.