U.S. import prices rose by much more than expected in March in a reminder of inflationary risks that could test the patience of the Federal Reserve. Powered by a jump in fuel prices, the cost of goods imported into the United States rose 0.9 percent, the sixth straight gain, following a 0.4 percent advance in February, the Labor Department said on Wednesday. March's rise was nearly double Wall Street forecasts for a 0.5 percent advance. Taken on their own, economists said the numbers were not a red alert for inflation because only around 11 percent of U.S. goods prices are imports. But it is a warning that the country's powerful economic recovery will feed into prices at some point. "You look for gathering evidence and this is just one piece of evidence that prices have bottomed and now we have to see how far they go on the upside," said Gary Bigg, an economist at Bank of America Securities. St. Louis Federal Reserve Bank President Bill Poole said on Tuesday the Fed should "act aggressively when inflation risks change, either up or down," and said he saw risks tilted slightly more to the upside. The Fed's policy-setting Federal Open Market Committee, of which Poole is a voting member this year, said on March 16 it could be patient in leaving interest rates at a post-1958 low of 1 percent. Patience can wear thin.
TEST OF PATIENCE
"With the demand for manufactured products rising, the building input cost pressure could cause firms to start looking at raising prices," Joel Naroff, of Naroff Economic Advisers in Holland, Pennsylvania, told clients. "This will not make the Fed comfortable and will clearly try the patience of even the most inflation-blind FOMC member," he said. The next scheduled FOMC meeting is on May 4. The cost of petroleum products climbed 6.1 percent after a revised 0.1 percent gain the previous month. Non-petroleum import prices increased 0.2 percent. Export prices were up 0.9 percent, the largest gain since April 1995's 1.0 percent rise, Labor said. Imported food costs advanced 0.8 percent after pushing up a revised 1.3 percent in February. Commodity prices have been powered higher in recent months. The /CRB Index of 17 commodity futures, a widely watched benchmark for raw material prices, sits near a 23-year high reached two weeks ago. Industrial supplies, excluding petroleum, advanced 1.1 percent and on a year-over-year basis were up 3.8 percent. Import prices can be influenced heavily by the value of the dollar in foreign exchange markets. The currency's two-year slide has so far had only a modest upward impact, with stiff competition and demand weakness as the economy climbed out of recession keeping costs in check, but this may be wearing off. Over the last 12 months, non-petroleum import prices have risen 1.0 percent. "It would appear that the better than 20 percent decline in the trade value of the dollar that has occurred over the past 2 years is beginning to have an adverse effect on import prices," said Bank of America's Bigg.
HIGHER RATES
Separately, in a sign markets are already pricing higher U.S. interest rates, the Mortgage Bankers Association said its index of demand for refinancings fell 15 percent to 4,126.7 from the previous week's 4,857.6, after mortgage rates rose. Refinancings accounted for over half of the loans processed last week by mortgage lenders. Average 30-year mortgage rates, excluding fees, increased 26 basis points to 5.75 percent, the MBA said. On the other hand, demand for loans to buy homes remained lively even if borrowing costs have risen, in proof that the country's buoyant housing market remains on its toes. The MBA's measure of demand for loans to buy homes, the MBA purchase index, rose by 7.6 percent to 477.5 from 443.8 in the prior week.///