Gas, oil price offset by falling imports

Economists uncertain of Katrina's impact


The nation's trade deficit narrowed in July and producer prices rose at a moderate pace in August, the government reported yesterday, as soaring costs of crude oil and petroleum products were unexpectedly offset by falling imports and muted overall inflation.

But economists cautioned that the data, which covers periods before Hurricane Katrina struck late last month, might not indicate sustained improvement. The hurricane has severely disrupted the energy supply system and major transportation links in the Gulf Coast, and that could disrupt trade and lead to higher inflation in coming months.

The trade deficit declined by 2.6 percent in July, to $57.9 billion, according to the Commerce Department, as imports of consumer and capital goods fell and exports of industrial material and capital goods rose. Economists had been expecting the deficit to widen to $59.8 billion. (The June trade gap was revised up to $59.5 billion from a previously reported $58.8 billion.)

The Producer Price Index, which measures prices of goods and services at the wholesale level, rose 0.6 percent in August. Energy prices were up 3.7 percent, with gasoline prices surging 9.5 percent. Excluding energy and food prices, the so-called core rate was unchanged. Economists had been expecting an overall increase of 0.7 percent and a rise in the core rate of 0.1 percent.

Over a 12-month period beginning in August 2004, producer prices were up 5.1 percent overall and 2.4 percent excluding food and energy.

The decline in imports was noteworthy, given that Americans spent $1 billion more on crude oil and other petroleum imports in July. Imports of oil and other petroleum products fell 3.3 percent, measured in terms of barrels, but the price per barrel soared 10.4 percent in a month.

Several economists said that the drop in total imports appeared to have been driven by businesses' growing reluctance to stockpile goods in anticipation of sales, helping keep costs low. "They are trying to keep things very lean," said Brian Jones, a Citigroup economist.

Imports of consumer goods including drugs, clothes, and jewelry fell 2.2 percent, and capital goods, including aircraft, drilling equipment, and computers also fell 2.2 percent.

Among major trading partners, the deficit with China grew 0.3 percent, to $17.7 billion, and shrank 26 percent with Mexico, to $3.5 billion.

It remains unclear how the hurricane will affect trade and prices in the next few months, but a few effects stand out.

Higher gasoline prices, for instance, can be expected to increase the rate of inflation and, at least temporarily, to restrain Americans' appetites for other goods and services as people adjust their spending and pay more for transportation, electricity, and, in a few months, heating.

"You are going to clearly see a hit to consumer spending," said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez, a research and consulting firm in New York. But "it's not going to be anything more than temporary."

The average retail price for all grades of gasoline nationwide was $2.956 a gallon Monday, according to the Energy Information Administration. That was down from a peak of $3.083 on Labor Day, but still about 60 cents higher than it was a month earlier and about $1 a gallon more than in September 2004.

With trade, the hurricane's effect could be manifold and unpredictable. Certainly, higher oil and gasoline prices will drive up the total cost of those imports, but disruptions to major ports, waterways, and other transportation links in the gulf region could limit other imports.

"Because we import more than we export," Jones of Citigroup said, "we may get some unusually good-looking data on the surface" as the trade gap appears to be narrowing.

Much more reliable information on the hurricane's nationwide effect will become available after temporary supply disruptions have been dealt with and consumers have adjusted their behavior to accommodate higher prices.

"It's hard enough forecasting when things are reasonably stable," Jones said. Now, "you have to take all of our forecasts with a grain of salt."

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