US import prices fell by 0.5% in October, which was much worse than the 0.1% decline expected. Economists are blaming China, were inflation readings continue to reflect the deflationary pressures of an economic slowdown.
"We expect import prices to decline further over the medium term as the effects of past dollar appreciation continues to weigh on prices," Barclays' Rob Martin said. "In addition, we believe that weakness in emerging Asia, especially China, is likely to push down import prices over and above any effect from the appreciation of the dollar."
"As such, we see the ongoing rapid declines in Chinese producer prices as a downside risk to our forecast. In addition, because the majority of non-automotive consumer goods are sourced from emerging Asia, we believe the declines in import prices are also likely to pass-through into consumer prices. Our expectation of further declines in import prices and the subsequent pass-through to consumer prices is the major driver of the soft consumer price inflation we forecast for next year."
Barclays