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Burden Sharing Shifts as U.S. Import Price Deflation Slows

China 2521 Cons. Discr. - Apparel 353 Cons. Discr. - Durables 298 Tariffs 1611 Trade Balance 847 U.S. 4459

U.S. trade price deflation continued to slow in December. Panjiva’s analysis of official data shows that import prices across all products rose by 0.5% year over year in December, the first increase since March and only the second increase in the past 12 months. 

Yet, that was largely down to commodity prices with the ex-food and fuels index continuing to decline by 1.3% – a level it has held for the past three months. Similarly, export price deflation slowed to 0.7% while underlying deflation remained at 0.3%.

UNDERLYING TRADE PRICES REMAIN WEAK AS FOOD AND FUEL BOOST HEADLINE

Chart compares U.S. trade price index changes by direction and coverage. Calculations include BLS data.  Source: Panjiva

The impact of commodity prices can be seen in the 17.0% year over year expansion in prices for imports from Canada, up from just 2.7% two months earlier. A 0.4% rise in prices from the EU meanwhile may reflect the implementation of retaliatory duties relating to aerospace subsidies. Imports from China were the second fastest declining after Latin America at 1.8% and 2.0% respectively. 

CHINA PRICE DEFLATION SETTLED IN PLACE DESPITE TARIFF CHANGES

Chart segments change in U.S. price index for imports by origin. Calculations include BLS data.  Source: Panjiva 

The drop in China prices has remained constant at 1.8% throughout the fourth quarter. That repeats a pattern of deflation that started in Nov. 2018 and can partly be attributed to tariff burden sharing. 

There’s some evidence that recent tariff increases – covering $120 billion of products at a 15% rate since September where rates will be cut to 7.5% under the phase 1 trade deal as outlined in Panjiva’s research of Jan. 16 – have elicited marginal price reductions.

Import deflation for footwear has accelerated to 1.4% from 0.6% a month earlier while furniture accelerated to 2.6% from 2.2%. 

That’s been offset however by slower deflation for products where tariffs have been well-established such as chemicals where deflation slowed to 5.5% but continued down despite tariffs remaining the same since Sept. 2018. The latter would suggest permanent pricing power erosion is possible.

SIGNS OF BURDEN SHARING FROM CHINA TARIFFS

Chart segments change in U.S. price index for imports from China by product. Calculations include BLS data.  Source: Panjiva 

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