Summary: U.S. import prices climbed 1.9% in May after an upwardly revised 2.0% increase in April, with imported fuel and capital goods accounting for much of the move. Over the past 12 months through May, import prices rose 6.7%, the biggest annual advance since August 2022. The rise in import costs arrives alongside accelerating consumer and producer inflation and ahead of a Federal Reserve policy meeting expected to leave the policy rate unchanged.
The Labor Department's Bureau of Labor Statistics reported that import prices, which exclude tariffs, increased 1.9% in May. This followed an upward revision to April's gain, now recorded at 2.0%.
Economists had been looking for a 1.0% increase for May after April's previously reported 1.9% jump. Instead, import prices exceeded those projections, and on a year-on-year basis they rose 6.7% in the 12 months through May. That 6.7% reading is the largest annual increase since August 2022, and it follows a 4.2% year-on-year rise recorded in April.
Imported fuel prices were a major contributor, increasing 12.5% in May after surging 18.6% in April. Imported capital goods also rose, with prices up 1.3% for the month. Observers noted that an artificial intelligence spending spree is pushing up imported capital goods prices.
Geopolitical developments have weighed on energy markets. Oil prices have soared amid the U.S.-Israeli war with Iran. Washington and Tehran said on Sunday they had agreed terms to end the war and reopen the Strait of Hormuz, though the pact may hinge on an end to hostilities in Lebanon.
Inflation readings elsewhere in the economy have also shown notable acceleration. Consumer inflation increased at its fastest pace in three years in May, while producer prices posted their largest gain in 3-1/2 years, according to government reports released last week.
Those inflationary pressures, together with a stable labor market, have raised the odds that the Federal Reserve could consider further policy tightening. Economists, however, judge the bar for an additional rate increase to be high.
U.S. central bank officials were due to begin a two-day policy meeting on Tuesday. Most market participants expected the Fed to keep its benchmark overnight interest rate in the 3.50% to 3.75% range, but to shift away from an easing bias, economists predicted.
Key points
- Import prices rose 1.9% in May after April's upwardly revised 2.0% gain - impacting input costs for companies that rely on imported goods.
- On a 12-month basis import prices advanced 6.7%, the largest year-on-year increase since August 2022 - key for inflation readings and monetary policy considerations.
- Imported fuel jumped 12.5% in May and imported capital goods rose 1.3% - sectors affected include energy, manufacturing, and technology-related capital spending.
Risks and uncertainties
- Geopolitical volatility - Oil prices have soared amid the U.S.-Israeli war with Iran, and the reported terms to end the war and reopen the Strait of Hormuz depend on developments in Lebanon, leaving near-term energy-market risk elevated.
- Inflation persistence - Faster consumer and producer inflation readings increase uncertainty around the Fed's policy path, which could affect borrowing costs across the economy.
- Capital-goods price pressures - An artificial intelligence spending spree is pushing up imported capital goods prices, creating cost pressures for firms investing in hardware and production capacity.
The data portray a trade-cost environment that is adding to broader inflationary pressures. As the Federal Reserve meets, markets and policymakers will weigh whether the combination of imported cost increases, stronger domestic inflation, and a stable labor market warrants any change in the central bank's forward guidance.