By Lucia Mutikani
WASHINGTON (Reuters) -U.S. import prices unexpectedly fell in May amid lower prices for energy products, providing another boost to the domestic inflation outlook.
The report from the Labor Department on Friday combined with data this week showing tame inflation readings last month to keep a September interest rate cut from the Federal Reserve on the table. U.S. central bank officials on Wednesday pushed out the start of rate cuts to perhaps as late as December, with policymakers projecting only a single quarter-percentage-point reduction for this year.
“Fed officials did not see what they were hoping for in the inflation trend when they met earlier this week, but the winds of change are coming for those bearish inflation outlooks,” said Christopher Rupkey, chief economist at FWDBONDS.
“We would not rule out a first rate cut in September. The decline in imported goods prices will surely be welcomed by inflation-weary consumers.”
Import prices dropped 0.4% last month after an unrevised 0.9% surge in April, the Labor Department’s Bureau of Labor Statistics said on Friday. That was the first decline in import prices since December. Economists polled by Reuters had expected import prices, which exclude tariffs, to edge up 0.1%.
In the 12 months through May, import prices increased 1.1%, matching April’s rise.
The Fed on Wednesday kept its benchmark overnight interest rate in the current 5.25%-5.50% range, where it has been since last July. Economists and financial markets remain optimistic that the Fed will start its easing cycle in September and lower borrowing costs twice. The Fed has raised its policy rate by 525 basis points since March 2022.
Imported fuel prices dropped 2.0% in May after advancing 4.1% in April. There were sharp decreases in the prices of crude petroleum and natural gas.
The cost of imported food plunged 1.6% after rising 1.3% in April. Excluding fuels and food, import prices fell 0.2%. These so-called core import prices jumped 0.6% in April. They had popped up despite the dollar strengthening against the currencies of the United States’ main trade partners this year.
Core import prices gained 0.1% year-on-year in May. The firmer import price readings in prior months were noted by policymakers, with Fed Chair Jerome Powell telling reporters on Wednesday that “there has been a surprising increase in import prices on goods, which is kind of hard to understand.”
Prices for imported capital goods fell 0.1% last month, reversing April’s 0.1% gain. The cost of motor vehicles, parts and engines dipped 0.1% after rising 0.4% in April.
Imported consumer goods prices fell 0.2%, declining for a third straight month.
The cost of imported goods from China decreased 0.2% after being unchanged for two consecutive months. Prices dropped 2.1% year-on-year in May. Imported goods from Canada and Mexico were also cheaper, but imports from the European Union cost more.
The government also reported that prices for U.S. exports declined 0.6% in May, reversing the prior month’s 0.6% increase. The first monthly decrease since December reflected a 0.8% drop in nonagricultural prices. Prices for agricultural exports rose 0.5%, lifted by higher prices for wheat, fruit, corn and meat.
Export prices rebounded 0.6% year-on-year in May after slipping 0.9% in April.
