Surge in Chinese Costs Sends US Import Prices Higher

Prices of imported goods into the United States unexpectedly rose in June due to increasing costs of Chinese products, the government said on July 17.Import prices edged up 0.3 percent last month, from a downwardly revised 1.7 percent gain in May, according to the Bureau of Labor Statistics.Economists had anticipated that import prices would fall by 0.7 percent.A decline in costs for food and energy imports was offset by higher prices for capital and consumer goods.Prices for fuel and lubricant imports dipped by 0.4 percent, driven primarily by improving traffic volumes in the Persian Gulf. By comparison, these costs had surged almost 13 percent in May and 19 percent in April.Conversely, non-fuel import prices ticked up 0.4 percent, driven by higher prices for capital and consumer goods, industrial supplies, and materials.This reflected the strengthening demand for technology products as companies bolster their investments in artificial intelligence (AI) infrastructure.China was a sizable contributor to last month’s increase as import prices from the world’s second-largest economy rose by 0.9 percent. This represented the largest monthly jump since January 2008, the bureau said.Despite President Donald Trump’s efforts, the United States still relies on China, accounting for 14 percent of its exports, down from 20 percent in 2017. But it also receives a majority of specific Chinese-made goods, including smartphones, telephone equipment, and toys.Trump’s blanket 10 percent Section 122 tariff on all goods entering the United States will expire later this month. But the administration has also imposed Section 301 import taxes ranging from 7.5 percent to 100 percent on Chinese goods.Prices for imports from Japan fell by 0.6 percent. Import prices from Canada and Mexico swelled 1.2 percent and 0.1 percent, respectively.In the 12 months ending in June, import prices rose by 7.1 percent, from a 6.7 percent annual increase the previous month—the biggest jump in almost four years.Meanwhile, the cost of U.S. goods shipped to foreign markets fell more than expected.Export prices fell by 0.6 percent in June, from the downwardly revised 1.2 percent increase. While agricultural export prices ticked up 0.2 percent, this was more than offset by a 0.7 percent drop in nonagricultural shipments, mainly industrial supplies and materials.Costs of U.S. goods shipped to China also slipped by 0.4 percent. The consensus forecast suggested prices of U.S. exports would fall by 0.4 percent. On a 12-month basis, export prices are up more than 10 percent. The trade data excludes tariffs.‘More Indicative’These figures indicate that U.S. consumers are paying far more than what the Consumer Price Index (CPI) shows, says Peter Schiff, chief economist and global strategist at Euro Pacific Asset Management.“This is far more indicative of the price increases U.S. consumers are actually paying than the 3.5% YoY increase in the June CPI and explains why inflation is such a big concern,” Schiff said in a July 17 post on X.This week, two key reports suggested that U.S. inflation could be stabilizing after the war in Iran upended global energy markets.June’s annual inflation rate eased to a lower-than-expected 3.5 percent, from 4.2 percent. Consumer prices also declined 0.4 percent from May to June, better than anticipated.The Producer Price Index—a pipeline indicator for what consumers could pay in the future—fell 0.3 percent last month and slowed to 5.5 percent year-over-year. Both readings came in below expectations.Inflation remains a problem, including for the Federal Reserve, says David Miller, senior portfolio manager at Catalyst Funds.“The major improvement from the peak inflation period is already behind us,” Miller said in a note emailed to The Epoch Times.“Goods inflation has improved, but services inflation, housing-related costs, wages, insurance, energy volatility, and geopolitical supply risks all remain important issues.”Futures market data show that traders have pushed back their rate hike forecasts. Investors now pencil in a quarter-point interest rate increase later this year, rather than the previous projection of September.