Energy prices fell in May, resulting in the slowest rate of increase in the Consumer Price Index since last November, according to the latest Bureau of Labor Statistics' reports on the consumer price, import/export price and producer price indexes. Energy prices had increased 26.4 percent since last June and 42.5 percent since the end of 2008. However, prices had fallen rapidly in the second half of 2008 and are now 8.3 percent below their July 2008 peak. In regards to the May numbers, while we should not expect a sustained fall, it seems that energy inflation is abating.
Nonagricultural export prices rose 0.5 percent in May and have now risen 7.0 percent over the past 12 months. While fuel accounts for about 7.6 percent of this index, driving up prices over this period, the dollar has also fallen 8.8 percent in the last year. Consequently, the price seen by purchasers of U.S. exports in local currency has fallen by 2.4 relative to May 2010. The effect of the fall in the dollar on trade prices has resulted in conditions favorable to a reduction in the trade deficit. Though the immediate mechanism is slightly higher inflation, the possibility of increased exports and domestic substitution of foreign goods bring welcome opportunities for the U.S. economy.
For more, check out our latest Prices Byte.