With China devaluing its currency, the fears will be brought up all over again about global deflation being exported from the world’s largest manufacturing destination. That will keep pressure on the Federal Reserve when it comes to raising interest rates, particularly since the Fed wants some inflation.

Now we have bad news from the import and export prices report released on Thursday morning. This is for the month of July, so it saw lower commodity prices and was before China made its move to devalue the yuan. Export prices were in the red at -0.2%, which is 0.1% better than the -0.3% consensus reading from Bloomberg. Import prices were -0.9% in July, also 0.1% better than the -1.0% expected by Bloomberg.

Here is where this gets really ugly. Those numbers above are the monthly readings. The year-over-year readings were atrocious. Export prices were -6.1% in July from the same time in 2014, and import prices were -10.4%.

The Bureau of Labor Statistics (BLS) reported that the drop in import prices in July was the first monthly decline since April, and it was also shown to be the largest monthly drop since January. The BLS said that the downturn in fuel prices drove much of the overall decrease, but a continued downward trend in non-fuel prices also contributed to the drop. Prices for import fuel were down by some 5.7% in July, after rising by a sharp 16.3% from
February to June.

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Also included was a big quote explaining import prices outside of fuel. The BLS said:

All Imports Excluding Fuel: The price index for nonfuel imports fell 0.3 percent in July and has not recorded a monthly advance since the index ticked up 0.1 percent in July 2014. In July 2015, lower prices for nonfuel industrial supplies and materials, consumer goods, and capital goods all contributed to the overall decrease. Prices for nonfuel imports also declined over the past 12 months, falling 2.6 percent. The drop was the largest year-over-year decrease since the index fell 3.1 percent for the 12 months ended in October 2009. Lower prices over the past year for finished goods; nonfuel industrial supplies and materials; and foods, feeds, and beverages all contributed to the 12-month decline for nonfuel import prices in July.

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