The December import price index [5]report from the BLS showed a modest deterioration at the headline level: declining by 1.20% this was fractionally better than the expected decline of -1.40% however a notable drop from last month's -0.50%. While most of the December decrease was attributable to falling fuel prices, nonfuel prices continued to trend down as well, with Import prices ex-fuels dropping 0.3% (after falling 0.2% in Nov), suggesting the rest of the world continues to export substantial deflation to the US.
Annually, the pace of declines also picked up modestly dropping "only" -8.2% from a year ago, higher than the -9.5% slide in October. Import prices have now seen an annual decline for 17 consecutive months starting in July 2014. Fuel prices decreased 9.5 percent in December, following a 3.5-percent drop in November. The December decline was the largest 1-month fall in the index since a 12.7-percent decrease in August and was led by a 10.0-percent drop in petroleum prices. Natural gas prices also declined in December, falling 6.8 percent.
Before blaming only sliding commodity costs for the continuing collapse in import prices, read this: prices for nonfuel imports fell 0.3 percent in December and have not recorded a monthly advance since the index rose 0.1 percent in July 2014. Lower prices for nonfuel industrial supplies and materials; foods, feeds, and beverages; and each of the major finished goods categories all contributed to the overall drop in nonfuel prices. The price index for nonfuel imports declined 3.4 percent over the past year, the biggest calendar-year drop since the index was first published in 2001.
And while the trend of US trade partners exporting deflation either across the Atlantic or Pacific continues, one name continues to stand out.
China.
As the BLS reported, the price index for imports from China edged down 0.1 percent in December and has not recorded a monthly increase since the index rose 0.1 percent in December 2014. Import prices from China declined 1.7 percent in 2015, the largest calendar-year decrease since the index fell 1.8 percent in 2009.
In other words, just like in the aftermath of the Global Financial Crisis, China has found the perfect escape valve for its unprecedented excess production (now that its own economy can't fit it in) - dump it in the US.
Nowhere is this more visible than in the following chart showing the Chinese import price index dropping by 1.7% Y/Y, the most since December 2009.
[6]
Expect China to continue flooding the US with deflation especially since as we showed before [7], there is only one thing it can do with all that excess production of aluminum, steel and all other commodities: export it to whoever will buy it at (or below) dumping prices.
[8]
