Today, the Bureau of Labor Statistics released its latest import price index. Import prices spiked 2.7% in March, and they are up 9.7% over the last twelve months. Economists were anticipating a 2.1% monthly increase and an 8.6% year-over-year inflation rate.
Much of the year-to-year gain in import prices is attributable to fuel. Excluding fuel, import price inflation was 4.2% for the twelve month period ending in March. Though it isn’t 9.7%, an inflation rate of 4.2% is by no means benign. If broader measures of inflation rose to 4.2% on a sustained basis, interest rates would spike. You could see ten-year interest rates above 7% in such a scenario.
Even more concerning than the broader rate of import price inflation, is the accelerating rate of inflation on imported Chinese goods. Import prices from China are up 2.6% over the last year and 4.42% on a six month annualized basis. China is the world’s largest low-cost manufacturing hub. The country has transitioned from an exporter of deflation to an exporter of inflation. It seems to me, that when the low-cost provider is raising prices, there is no escaping greater inflation.