I'm tempted to just lift my blog post from last month, but I'll resist the temptation to be lazy. The basic story is of course the same, there was a sharp jump in import prices again in January. Imports prices overall rose by 1.7 percent, with non-fuel imports rising by 0.7 percent. Import prices are now rising almost everywhere and across the board. Prices of items imported from the EU rose by 1.1 percent last month, from Latin America by 3.6 percent, and from China by 0.8 percent. Prices of goods imported from China have been rising at a 4.4 percent annual rate over the last three months. This matters because higher import prices will get passed on in higher domestic prices, in other words, inflation is likely to rise. This will make the Fed's choices harder in the months ahead. Efforts to boost the economy with lower interest rates will also feed inflation by lowering the value of the dollar. It was inevitable that the dollar would eventually fall and put the Fed in this situation -- the huge trade deficits of recent years could not be sustained forever -- but this may be a bad time for this source of inflationary pressure to appear. In any case, this was a big release that deserved much more attention than it was generally given, although the WSJ gets credit for taking notice.
--Dean Baker
