Cost of imported goods see biggest decline in 2½ years

The cost of U.S. imports sank in August largely due to lower oil prices, but a strong dollar has also made foreign goods less expensive.

The numbers: The cost of goods imported into the U.S. fell in August for the second straight month and posted the biggest drop in two and a half years, largely reflecting lower oil prices.

The import price index sank 0.6% last month, .

If fuel is excluded, however, import prices fell a smaller 0.1%

What happened: Lower oil prices explained most of the decline in August, but prices were on the softer side for many imports. A contributing factor is the stronger value of dollar since it makes it cheaper for Americans to buy foreign goods.

The impact of U.S. and retaliatory foreign tariffs were harder to discern last month.

The cost of unfinished metal imports actually fell, for instance, and the price of U.S. soybean exports rose. Steel and soybeans have been caught in the crossfire between the U.S. and key trading partners.

Some economists contend tariffs have actually caused prices to fall on the view that the Chinese economy could get hurt and dampen demand for key commodities. If so, the resolution of trade disputes could clear the way for import prices to rise.-

For now it’s the opposite. The cost of imports over the past 12 months slowed to 3.7% in August from 4.3%.

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Big picture: The sharp decline in the cost of imports is part of a broad pattern that showed inflation tapering off toward summer end. U.S. price indexes for wholesale and consumer goods were also on the softer side.

Many economists doubt the slowdown will last, however, and the Federal Reserve is poised to raise U.S. interest rates this month as a sort of insurance policy to make sure inflation doesn’t get out of hand.

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Market reaction: The Dow Jones Industrial Average and the S&P 500 rose in Friday trades. The stock market has forged ahead in the past few days after a shaky start to the month and is not far from record highs.

The 10-year Treasury yield touched 3% for the first time since June.