Import Prices Continue to Breach New Records

Each month everyone focuses on tomorrow's report, the CPI - while I focus on the monthly import report. After all as a country that makes very little its consumers actually consume in our new age "service economy", we import many/most of our goods. So the prices we pay for said imports are a true reflection of a good part of our inflation rate. For those interested I did a big review of this a month ago so I won't repeat [May 13: Import Prices Continue to be a Disaster]

Here is a general trend of what costs have been for things we import

November 07, the year over year import price increase was 11.4% [Dec 12: Real Inflation Showing in Reports not Called PPI/CPI]
January 08, the year over year import price increase was 13.7% [Feb 15: Today's Import Report Continues to Support my Stagflation Thesis]
March 08, the year over year import price increase was 15% [Apr 11: GE Warning and Import Prices Show us Real Inflation]
April 08, the year over year import price increase was 15.4% [May 13: Import Prices Continue to be a Disaster]

Notice a trend? And what just came out this morning for May 08? Try 17.8% on for size. Even excluding petroleum (which none of us use, so therefore should not count in inflation) we are approaching 7% imported prices. But don't worry, inflation is benign, contained and somewhere around 3%. (even though the rest of the world is around 8%)

• Import prices soared 2.3% on a monthly basis in May, the Labor Department said Thursday, compared to April's 2.4% increase, which was revised up.
• Import prices swelled 17.8% from May 2007, the largest annual rise since the data were first published in September 1982.
• Petroleum import prices rose 7.8% last month compared to April and were up 68.8% on the year. Natural gas prices were up 5.4%, the eight-straight monthly increase.
• Excluding petroleum, import prices rose 0.5% and were up 6.6% on the year. Even excluding all fuels, prices rose 0.5% on a monthly basis and 6.1% on the year, the sharpest gain on record.
• Food prices rose 1% and were up almost 14% from last year, the biggest rise in 13 years.

The other issue I highlighted in this report since last fall is how we use to import deflation from China, and that worm was turning. That is another trend that is changing... and quickly.

• Prices of goods from China spiked 0.6% compared to April and rose 4.6% from a year ago, a fresh record, suggesting imports from China are no longer an offset to domestic price pressures and are even adding to them.
  

Keep in mind 30 days ago, prices from China were up 0.2% on a monthly basis, and 4.1% on a yearly basis. For those who don't follow these things, for years on end these percentages were negative... we were able to keep prices down by importing from China. Now they are helping to stoke inflation... we flagged this as a potential threat last September and it's coming true. [Sep 11: China Inflation Highest in 11 Years, Why do you Care?]

To close this entry let me get to today's great news, the "booming" retail sales. Just a week ago we saw the sorry state of retail - remember that huge Thursday rally because Walmart and Costco were doing good? Well we are rallying off the same news... retail sales increased 1.0%, as opposed to expectations of 0.5%. Hmm, I wonder why we even got that number. Could it be that when we borrow from our grandchildren (more debt), sending Treasuries to China in return for dollars, which we then send to the people, we can goose the numbers? Nah. :)

• The healthy increase in May sales suggested consumers were putting to work some money the government kicked back to them in a plan to stimulate the foundering economy.
• About $48 billion in payments were cut in May, Treasury Department numbers indicate.
• "I've noted for weeks that with retail sales running at a pace of $385 billion per month, it takes an increase of just $3.85 billion to push retail sales up a percentage point. That's a small sum in comparison to the $120 billion in tax rebate checks that the government has issued," said Tony Crescenzi of Miller Tabak & Co. "It's no wonder, then, that retail sales increased 1.0% in May overall and 1.2% excluding automobile sales."

Bottom line: Expect "better than expected" retail sales for a while, which the pundits can point to as a "recovering economy".... and remember your grandchildren (whom we're borrowing from/layering more debt on their shoulders) while the seals clap on Wall Street. Again, as economic conditions DEGRADE I expect yet another rebate check (more borrowing from your grandkids) to be announced later in the year. So we can goose some more numbers - and keep repeating. Until finally the economy one day actually recovers on its own volition. Apparently the business cycle is never going to be allowed to happen ever again as the nanny state wants to protect us from reality.

One more point I always make everytime we cheer a retail number. If inflation is rising 5% year over year, and sales are rising anything less than 5% year over year, you actually are going backwards on unit sales. Plug in any number you wish for inflation, but simply to keep up with the inflation rate, sales need to be higher than inflation for true "growth" to be occuring. Just as I said last Thursday, we cannot be bothered with small details like that on Wall Street, but for those living in the real world, it's the reality. The blog mascot chimed in on what he thinks of today's rally....