Import Prices Continue to be a Disaster

I want to segregate the import report from the bevy of other entries I do, because I find this to be a very important report that the mainstream financial press glosses over; I've been watching it very closely since blog inception (and before then). It is very important if you are not an economics person to understand what is really happening in "reality" as opposed to what is told or highlighted by the media....we are seeing 2 key trends

1. Import prices are off the chart, running at a mid teens rate - for a country that imports much of its consumer goods that is very troubling and in my humble sign a signal of what REAL INFLATION is in this country
2. I flagged the troubling trend in Chinese import prices back in the fall - for years we have had DEFLATION due to low cost Chinese goods - well the worm has turned this winter and now it is getting worse

Let's look closer at this important report

• Prices paid for imported goods rose 1.8% in April, the Labor Department reported Tuesday, as costs for petroleum and other products gained.
• The price for imported petroleum rose 4.4%. The price for non-petroleum products rose 1.1% for the second consecutive month -- matching the largest one-month gain for the index since these prices were first published on a monthly basis beginning in December 1988.
• The prices for non-fuel imports rose 1.0% -- matching the prior month's gain -- the largest one-month increase since the index was first published in December 2001.
• For the 12 months through April, prices for imports gained 15.4%. (folks, this is the reality, not the fantasy you will be told tomorrow in the Consumer Price Index)
• However, last week, the Commerce Department reported that both imports and exports fell sharply in March, driving the U.S. trade deficit down to $58.2 billion, in a sign of weaker global growth. [May 9: March Trade Deficit Reflects 2 Bad Trends] (This was celebrated on financial TV as a "good thing")
• Prices for imports from China rose 4.1% for the 12 months ended April 30, the largest such increase since the index was first published in December 2003, according to the Labor Department.
• Prices of goods from China rose 0.2 percent (monthly basis), while those from Latin America jumped 2.6 percent and imports from the Middle East increased 3.7 percent.

March 08, the year over year import price increase was 15% [Apr 11: GE Warning and Import Prices Show us Real Inflation]
January 08, the year over year import price increase was 13.7% [Feb 15: Today's Import Report Continues to Support my Stagflation Thesis]
November 07, the year over year import price increase was 11.4% [Dec 12: Real Inflation Showing in Reports not Called PPI/CPI]

The trend is very, very, very clear - and it is alarming - and our Federal Reserve continues its policies to flood the world with cheap paper currency; just this morning word of more helicopters arriving courtesy of Uncle Ben (free money for everyone - woo hoo)

• ...the central bank will increase its auctions of cash to banks as needed.
• The Fed announced May 2 that it would boost the Term Auction Facility, or TAF, to $150 billion per month from $100 billion, the third increase since the program began in December.

The China situation is something we flagged early in the blog life [Sep 11: China Inflation Highest in 11 Years, Why do you Care?]

Also, remember we import so much from this country of "CHEAP" labor. What happens when they demand higher wages so they can do minor things like... EAT. Chinese companies are already skimping in quality control since they are trying to outdo each other on pricing - and you see the results in dog food, kids toys, and I am sure I already forgot a few others in the near weekly recall news. So increased safety regulations, increased wages for their workers - and suddenly Chinese goods become more expensive.... and who pays? The US consumer - in the form of potential inflation.

You can see what inflation would really show by this entry (graphical) if not for the government meddling with the numbers [Mar 16: A Picture is Worth a Thousand Words: Inflation] Apparently as long as you keep telling the sheep that what they see in their normal lives is not really happening, the strategy is the sheep will keep believing the government figures.

I continue to believe ALL assets are being inflated due to these actions (a fixed amount of assets is being chased by a huge inflow of paper money driving prices up) - while commodities have been in a bull market for years, the charts of many commodities (see crude) are a 45 degree angle since the Federal Reserve (and ECB with their $500 Billion - yes $500 BILLION) began flooding the world with paper currency this fall. That includes equities - we have a fixed amount of stock certificates in this world, and as with other commodities a juicing of the money supply (supply/demand economics 101) is keeping them elevated over "normal levels". Without this infusion of currency printed out of thin air ($1.3 Trillion I have read is now the running total of what has been pushed into the system by Western Government Central Banks), one must wonder where the stock market(s) would be today (answer: materially lower) - as would be all commodities. But since commodities only hurt commoners who need to pay for them to eat/live/breathe, it's ok - we need to keep the bankers fat and happy. And keep stock prices high for the top class.

So as the folks at Minyanville say so well, inflation in things we need (food, energy), deflation in things we want (homes, clothes, iPods, etc). Quite a combo.

Tomorrow morning you will hear a different story with the Consumer Price Index - a number I will ignore, but CNBC will tell you "inflation is slayed so buy stocks". Heck we might go back to a 3% inflation with these fictional figures - do I hear 2%? Just keep feeding the sheep.

(Thanks to Bluedog for his artist rendition of Homer)