Rhetoric from the Fed has held that recent gains of commodity prices are "transitory." Economic data have been supportive of this stance. Core consumer prices are yet to show worrisome readings and inflation expectations remain anchored. Against this backdrop, new inflation reports will be tracked closely. The Consumer Price Index will be published on May 12; import prices were published this morning. The April Import Price Index moved up 2.2% after a 2.6% gain in March. Higher oil prices account for a significant part of this increase. In addition, the weakness of the dollar has played an important role.
Although imports account for roughly 16% of GDP in the U.S. economy, their prices are important in the inflation battle. Prices of consumer goods excluding autos increased 0.4% in April and are up 0.6% from a year ago. Prices of autos have risen 1.8% (see Chart 2), while that of capital goods have increased 1.0%. The import price index of manufactured goods posted a 5.5% increase in April (see Chart 3)
At the present time, the upward trend of non-oil import prices reflects the impact of a weak dollar. It is conceivable that these prices will be more threatening as demand gathers steam.
Small Business Survey Highlights Continued Pessimism about Business Conditions
The Small Business Optimism Index declined to 91.2 in April from 91.9 in the prior month. More importantly, fewer firms had plans to increase capital expenditures in the next 3 to 6 months (21% vs. 24% in March) and the percentage of respondents indicating plans to increase payrolls held steady in April (2.0%). Also 25% of respondents continue to report poor sales as problematic, which is unchanged from March.
The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.
