US DATA: Subdued Import Prices In June Despite A Rare Increase From China

The US terms of trade saw a sizeable improvement in June from a combination of stronger than expected export prices and weaker than expected import prices. The latter came despite stronger China import prices in a partial correction after what had looked like some implicit taking of a tariff hit in April and May. Looking specifically at M/M pressures in June, the relative strength in consumer goods prices look at odds with both yesterday’s core PPI figures and today’s import prices. 

• Import price inflation was softer than expected in June at 0.1% M/M (cons 0.3) after a downward revised -0.4% (initial 0.0%) in May.
• Import prices ex petroleum also surprised lower with 0.0% M/M (cons 0.2) after a downward revised 0.0% (initial 0.2%).
• The breakdown of import prices by major country was interesting, especially for China where they increased 0.5% M/M for the strongest rise since Dec 2021 (and the first increase since Oct 2022).
• It does however follow outsized declines of -0.8% M/M in April and -0.7% M/M in May in what had been signs that Chinese exporters were implicitly taking some of the tariff hit.
• China remains a source of deflation on a trend basis though, with imports prices at -2.2% Y/Y.
• Combined with surprisingly firm export prices, at 0.5% M/M (cons 0.0) in June after -0.6% (initial -0.9%), and there was strong improvement in the terms of trade.
• As for core PCE implications, passenger fares from import prices increased a non-seasonally adjusted 5.4% M/M in June vs an average of 9.7% M/M in the previous four Junes. We very roughly guess that could see core PCE estimates trimmed perhaps 1 or 2bps from a median marginally under 0.30% M/M although it depends on what was already penciled in as there had already been signs of weakness in airfares in other inflation data. We wouldn't be surprised if the perceived impact was even smaller.