Lower import and rising consumer prices improve the outlook for U.S. inflation

U.S. import prices fell in July for the first time in seven months, thanks to a stronger dollar and lower fuel and non-fuel costs. At the same time, the annual consumer inflation forecast weakened in August, the latest sign that price pressures may have peaked.

Import prices, excluding duties, fell 1.4 percent last month after rising 0.3 percent in June, the Labor Department reported Friday.

It was the biggest drop in a month since April 2020 and exceeded the expectations of economists in a Reuters poll, who had expected it to be 1.0% less. Import prices rose 8.8% in the 12 months through July after rising 10.7% in June, marking the fourth consecutive monthly decline in the annual rate.

The report followed other expected signs of an end to the rise in inflation. U.S. consumer prices were unchanged in July thanks to a sharp decline in gasoline costs after rising 1.3% in June, although underlying price pressures remained elevated. Producer prices also declined last month amid lower energy costs.

Jeffrey Roach, chief economist at LPL Financial believes the economy has passed the peak of inflation, which follows from lower import prices and producer prices.

The U.S. Federal Reserve is considering raising the benchmark overnight lending rate by 50 or 75 basis points at its next meeting Sept. 20-21 as the central bank struggles to reduce demand in the economy and lower inflation to 2 percent. The Fed has raised its discount rate by 225 basis points since March.

Richmond Fed President Thomas Barkin reiterated after Friday's data that he and his fellow policymakers are not going to stop raising rates until there is long-term evidence that price pressures are on a downward path.

Barkin, in an interview with CNBC, said that until controlled sustainable inflation is achieved, restrictions must be adhered to.

Prices on imported fuel fell 7.5 percent last month after rising 6.2 percent in June. Oil prices fell 6.8%, and the cost of imported food items fell 0.9%, the largest monthly drop since November 2020 and the third consecutive monthly decline.

Import prices fell 0.5%, fuel and food prices excluded. Underlying import prices fell 0.6% in June. They rose 3.8% year-over-year in July. A stronger U.S. dollar is helping to keep core import prices in check.

The University of Michigan conducted a survey and the results can be read below. U.S. consumer sentiment continued to rise in August from a record low earlier this summer, and U.S. households' short-term inflation forecasts deteriorated again amid a sharp drop in gasoline prices.

The preliminary August value of the overall consumer sentiment index was 55.1, up from 51.5 the previous month. It hit a record low of 50 in June.

Reuters conducted a survey which found that the preliminary value for August was currently higher than economists' median forecast of 52.5.