By Lucia Mutikani
WASHINGTON (Reuters) - U.S. import prices fell by the most in six months in February as the cost of petroleum products dropped, and economists said they could decline further because of the coronavirus pandemic and an oil price war between Saudi Arabia and Russia.
The import price deflation and the coronavirus are expected to subdue inflation in the months ahead, which economists say could embolden the Federal Reserve to aggressively cut interest rates again next week. The highly contagious virus is seen by financial markets as the catalyst that will derail the longest economic expansion on record, now in its 11th year.
"Lower oil prices weighed on U.S. import prices in February but it will be an even larger weight in March," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania. "The drop in energy prices should prompt the Fed to be even more aggressive at its March meeting."
The Labor Department said on Friday import prices slipped 0.5% last month after an upwardly revised 0.1% gain in January. Import prices, which exclude tariffs, were previously reported to have been unchanged in January. Economists polled by Reuters had forecast import prices would decrease 0.8% in February.
In the 12 months through February, import prices declined 1.2% after rising 0.3% in January.
The coronavirus has disrupted supply chains as China, the main source of inputs used in many factories in the United States, struggles to bring manufacturing production back to full capacity. While the resulting shortages are likely to push up prices of some goods, travel restrictions and social distancing are seen depressing demand for services such as travel, hotels, entertainment and eating out at restaurants. The coronavirus' impact is expected to start showing up in March economic data.
WEAK EXPORT PRICES
U.S. stocks rose sharply after their worst daily selloff in more than three decades as investors hoped more fiscal easing would head off a global recession. The dollar was trading higher against a basket of currencies, while U.S. Treasury prices fell.
The Fed last week slashed its benchmark overnight interest rate by a half percentage point to a target range of 1.00% to 1.25%, in its first emergency rate cut since the financial crisis. Financial markets have fully priced in a rate reduction of as much as 75 basis points at the U.S. central bank's March 17-18 policy meeting.
In February, prices for imported fuels and lubricants tumbled 7.7% after falling 0.6% in January. Petroleum prices dropped 7.6% after being unchanged in January.
Imported food prices surged 1.5% last month. That followed a 0.4% increase in January. Excluding fuels and food, import prices rose 0.2% last month. The so-called core import prices edged up 0.1% in January. Core import prices fell 0.8% in the 12 months through February.
The cost of goods imported from China declined 0.2% in February, the most since January 2019, after being unchanged in the prior month. Prices fell 1.5% year-on-year in February.
The cost of imported capital goods nudged up 0.1% last month, matching January's gain. The price of imported motor vehicles and parts was unchanged as was the cost of imported consumer goods excluding automobiles.
The report also showed export prices dropped 1.1% in February, the largest decline since December 2015, after increasing 0.6% in January. Export prices decreased 1.3% on a year-on-year basis in February after rising 0.4% in January.
Prices for exported agricultural products fell 2.7% as prices for vegetables, soybeans and meat declined. Prices for agricultural products gained 0.2% in the 12 months to February.
Prices for exported nonagricultural goods decreased 1.0% last month after rising 0.6% January. In the 12 months through February, prices dropped 1.6%.