Current Account Deficit Shrinks, Import Price Index Rises Less Than Estimates

- The 4Q Current Account Deficit shrank to -$195.8 billion versus estimates of -$203.5 billion and -$229.4 billion in 3Q.
- The Import Price Index for February rose .2% versus estimates of a .8% increase and a -.9% decline in January.

BOTTOM LINE: The US current account deficit narrowed to $195.8 billion last quarter as lower oil prices trimmed imports, Bloomberg reported. The current-account deficit is now 5.8% of GDP versus 6.9% in the third quarter. I continue to believe the current account deficit will only improve modestly as US growth improves later in the year relative to other developed economies and commodities continue to decline.

Prices of goods imported into the US rose less than forecast in February, restrained by declines in costs of clothing and capital goods that may help keep inflation under control, Bloomberg reported. Excluding petroleum, the costs of goods shipped to the US fell .1% for a second month. Prices of goods from China fell .2% in February. Prices of US products shipped to other countries rose .7%. It is surprising that import prices barely rose in February, considering the jump in most commodity prices during the month. Import prices should remain very weak over the intermediate-term. I continue to believe inflation fears have peaked for this cycle as unit labor costs remain subdued, global growth slows and commodity prices continue to fall.