Import prices drop, limiting risk of inflation

Wholesale inventories were up 0.1% in May, first increase in a year

July 11, 2002|By BLOOMBERG NEWS

WASHINGTON - The price of U.S. imports fell last month for the first time in six months, limiting the risk that inflation will accelerate this year.

Falling oil prices, after five months of increases, led the 0.6 percent decline in the Labor Department's import price index, which was released yesterday. Wholesalers built stockpiles in May, the first increase in a year, another government report showed.

Tame costs are helping sustain a manufacturing recovery, and cheap imports are holding down retail prices. Subdued inflation increases the likelihood that the Federal Reserve will keep interest rates at a four-decade low this year.

"The Fed has nothing to worry about when it comes to inflation," said Joel L. Naroff, president of Naroff Economic Advisors Inc. in Holland, Pa. Imports are 3.9 percent cheaper than they were a year earlier. Between June 2000 and June last year, they declined 2.6 percent.

"We're able to secure better prices, and we've turned that around to enable our customers to purchase at better prices," said Shannon Merson, vice president of inventory management at Mikasa Inc., a Secaucus, N.J., distributor of fine china.

Inventories of all goods at U.S. wholesalers rose 0.1 percent in May, the first increase in a year, after a 0.9 percent decline in April, the Commerce Department reported. Sales fell 0.2 percent, the first drop this year, after increasing 1.5 percent a month earlier.

Stockpiles are 7.2 percent lower than in May last year, after U.S. companies shed excess supplies during the recession that began in March last year. The inventory-sales ratio, a measure of the time goods remain unsold at distributors, was 1.24 months.

The decline in import prices followed a 0.1 percent increase in May and was the first since prices fell 1 percent in December.

Prices excluding petroleum rose 0.1 percent after falling 0.1 percent a month earlier. They were 2.6 percent lower than they were a year earlier.

Oil prices rose almost 50 percent during the first five months of this year. They reached an eight-month high in May amid concern that OPEC wasn't producing enough to meet U.S. demand.

Members of the Organization of the Petroleum Exporting Countries agreed last month to keep production quotas at an 11-year low, but rival nations such as Russia and Norway are increasing supplies. Also OPEC members are exceeding their quota.

The falling value of the U.S. dollar this year could help U.S. companies sell more goods overseas, while pushing up the cost of imports, economists said. Compared with a basket of currencies including the euro and the yen, the dollar is down about 3 percent this year.

Prices for goods imported from Japan rose 0.1 percent last month. Prices of European Union goods rose 0.6 percent, and prices of goods from Canada, the largest U.S. trading partner, fell 1.2 percent. Prices of goods from Latin America fell 2.3 percent.

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