Import prices rose for the second consecutive month in December and the 1.1 percent increase was the largest monthly advance since May. The price index for overall imports also increased for the fifth straight year in 2006, advancing 2.5 percent after more substantial increases of 8.0 percent and 6.7 percent in 2005 and 2004, respectively.
A 4.8 percent increase in petroleum prices was the largest contributor to the overall December rise. Petroleum prices resumed their upward trend after declining 21.5 percent for the three-month period ended in November. The index rose 6.2 percent overall in 2006, the fifth consecutive year the index advanced, but the smallest annual increase over that period.
Nonpetroleum prices increased 0.4 percent in December after a 0.9 percent advance the previous month. Prices for nonpetroleum imports rose 1.7 percent over the past 12 months after advancing 2.4 percent and 3.7 percent in 2005 and 2004, respectively. The December increase in nonpetroleum prices was driven by a 1.5 percent rise in nonpetroleum industrial supplies and materials prices. That advance in turn was led by higher prices for natural gas, up for the second consecutive month, metals and chemicals prices. The price index for nonpetroleum industrial supplies and materials increased 4.5 percent over the past year.
There is good news for Fed watchers in this report. Note that nonpetroleum import prices are showing a decreasing trend. On an annual basis, they rose 3.7% in 2004, 2.4% in 2005 and 1.7% in 2006. That annual trending decrease may rekindle speculation about a rate cut in the coming year.
In addition, oil prices have dropped in a big way since the beginning of the year. Depending on oil's price action for the remainder of the month, this may make the 1.1% increase in December nothing more than statistical noise.
The December to December percent changes in commodity imports was 2.5% for 2006, which is a decrease from the 8% increase in the December to December 2005 period. A decrease in oil prices is the primary reason for the drop.