Last week we talked about international trade and about how, for several decades, imports of goods and services have exceeded exports of goods and services. Today we're going to take a look at the prices we pay for those imports and see what impact they might have on changes in the general price level (inflation) here in the U.S.

Based on preliminary numbers for the third quarter of 1995, the dollar value of our imports is about 13% of the total dollar value of the nation's Gross Domestic Product. If the price growth for imports gets too far out of line, then import purchases would impact our rate of inflation. Now, as we all should know by now, increases in inflation make bond prices swoon. And, when the bond market sells off, the stock market usually follows. So, concerned investors of all persuasions should be aware of what's going on with the prices of imports.

Today the Labor Department released its December report on import prices, and we can all breathe a collective sigh of relief. For all of 1995, import prices rose 2.6% -- just a little, but only a little, higher than the rise in the Consumer Price Index for 1995 (2.5%). It seems that foreigners are sensitive to our domestic economic conditions and that prices for their goods and services adjust accordingly. By way of contrast, the price increase for imports during 1994 was 5.3%.

Prices for imports have been trending down since July of last year. In fact, November's increase of 0.1% was the first increase in four months. In December, import prices would have been unchanged were it not for a surge of 4.3% in petroleum prices related to the unseasonably cold weather. This pulled import prices up 0.5% for the month.

You may recall from last week that the international trade deficit numbers were comparatively low in the August-through-November time frame -- further evidence of a lessening in demand for imported goods.

Summing up: During the past half-year fewer goods have been imported and the prices received for those imported goods have been trending downward -- still more evidence of a slowing U. S. economy.

Byline: Lafferty (MF Merlin)