Just time for a quick one today, but yesterday’s Labor Department release on U.S. export and import prices in October revealed a minor, not-so-encouraging milestone: On a monthly basis, both of these prices declined for the third straight month for the first time since April, May, and June of 2013. For anyone worried about the U.S. and/or world economies falling into deflation, and all the economic harm that persistently decreasing prices can do, this stretch of weak import and export prices spells trouble. For it indicates that the demand for goods and services all over the world is seriously waning.
Moreover, signs of deflation in U.S. trade flows didn’t just start in August. U.S. import prices have been falling month-to-month since July, and have dropped for five of the last seven months. U.S. export prices have been down month-to-month for five of the last seven months, too.
Measured year-on-year, these price trends are scarcely more encouraging. For example, in October, 2013, import and export prices started a five-month period in which they both fell over the preceding twelve months. But prices began strengthening in both flows in the spring – until August, when import prices began sliding again. Export prices followed suit in September, and now both are down year on year for the past two months, with the October yearly drops exceeding the September yearly drops.
One source of (slight) consolation: The import and export price situations are both looking better than when the financial crisis was peaking, in 2008. That year, both sets of prices saw month-to-month drops for five straight months – and the declines were much bigger, especially on the import side. At the same time, that was a period when the world economy was teetering on the edge of historic meltdown.
Interestingly, as overall U.S. import prices were decreasing in October, prices of Chinese and Japanese goods rose slightly last month over their September levels. Don’t expect that trend to continue for Japan – October 31 was the day when the Bank of Japan announced a massive monetary easing program, which has since driven the yen down to multi-year lows against the dollar.