Import Prices Set For A Further Drop

Double-digit Y/Y % gains in the US broad trade-weighted dollar index have typically been consistent with similar sized falls in the import price index. With today's release of above-expected October import price figures (+4.2% Y/Y, vs 4.1% survey), it's worth noting that relationship has broken down over the past year or so,

• The broad dollar has been positive Y/Y since November 2021, but import prices have continued to rise at a 10+% clip for most of the period since and are only starting to cool.
• Two possible explanations for this divergence: one is that petroleum import prices have remained stubbornly high even as the USD has strengthened, which is unusual vs previous periods and attributable to the Russia-Ukraine war fallout.
• But ex-petroleum import prices are also staying stubbornly high - this could be the result of supply chain issues keeping global prices elevated with dollar strength not enough to offset.
• It's likely that import prices will "catch down" to some extent with dollar strength and they are already moving in that direction, but the headwinds for inflation from a stronger USD aren't as strong as they have been in the past.