Another Inflation Warning: Import-Export Prices Rise Faster Than Expected

In another sign of rapidly accelerating price inflation, import-export prices rose much faster than expected in May.

Import prices were up 1.1% month-on-month in May, and the Labor Department revised April’s increase from 0.7% to 0.8%. Projections for May were for a 0.7% increase. The actual number was higher than the high end of estimates.

It was the seventh monthly gain in import prices, bringing the year-on-year increase to 11.3%. That marks the largest rise since September 2011.

Export prices charted an even bigger increase, surging 2.2% in May on the heels of a 1.1% increase in April. Prices for agricultural exports rose 6.1%, the largest gain since November 2010.

Year on year, export prices skyrocketed 17.4%. According to Reuters, that’s the largest rise since the series started in September 1983, after advancing 14.9% in April.

Import-export prices better reflect rising prices than CPI because they’re not manipulated. When you have a basket like the CPI, the basket changes. The government is very subjective about what goes in there and what comes out. They have substitutions. They have hedonics where they try to interpose a judgment call as to whether or not the quality of a product went up or down, and if the quality went up, they adjust the prices down. So, it’s not a consistent measure by design. You’re understating the true increase in the cost of living.

On the other hand, import-export price data simply reports the increase or decrease in prices. It’s not an easily manipulated number. This is real. This is indicative of the pain consumers are experiencing.

A lot of people want to dismiss the big increases due to the “base effect.” The year-on-year numbers compare current prices to prices that dropped sharply in the early months of the pandemic. But that doesn’t explain the big month-on-month increases. When looking at month-on-month data, April serves as the “base” for May. We weren’t in the pandemic in April.

The fact that you’re still seeing these huge increases on a month-over-month basis — you can’t simply dismiss it and attribute it to a base effect from something that happened a year ago.

Higher export prices are generally viewed as more of a positive because that’s money flowing into the US. But if it’s costing so much more to produce products and services for export, it stands to reason that it also costs more to produce products that Americans consume at home. For instance, the US exports a lot of food products. It essentially sells its surplus food to the rest of the world. But Americans have to buy and eat that food as well.

The fact that export prices are rising at a much higher rate than import prices reveal that inflation is a bigger problem in the US than abroad. As inflation continues to drive up the cost of production in the United States, we then rely more and more on the rest of the world. Our economy is becoming increasingly less competitive because inflation is driving up our costs.”