U.S. import prices post strongest annual gain in nearly four years

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US import prices annual gain

Highlights

U.S. import prices rise 1.9% in May, exceeding economists’ 1.0% forecast, and mark a 6.7% annual increase, the highest since August 2022.
Imported fuel prices jump 12.5% in May, capital goods rise 1.3%, driven by oil market disruptions and robust artificial intelligence investment.
Rising inflation and labor market stability heighten odds of a Federal Reserve rate hike, though most expect rates to remain at 3.50%–3.75% and easing bias to diminish.

May price gains outpace forecasts

As reported by the Labor Department's Bureau of Labor Statistics, import prices increase 1.9% in May after an upwardly revised 2.0% jump in April. Economists polled by Reuters expect a 1.0% rise after the previously reported 1.9% increase in April, while the index excludes tariffs.

In the 12 months through May, import prices advance 6.7%, the largest year-on-year increase since August 2022, after a 4.2% rise in April. Imported fuel prices climb 12.5% in May after surging 18.6% in April, while imported capital goods prices rise 1.3%.

Oil prices soar amid the U.S.-Israeli war with Iran, fueling broader inflation pressures. Washington and Tehran say on Sunday they agree terms to end the war and reopen the Strait of Hormuz, though the pact may depend on an end to hostilities in Lebanon.

Inflation outlook and Fed implications

Government data reported last week show consumer inflation increases at its fastest pace in three years, while producer prices record their largest gain in 3-1/2 years. The combination of rising inflation and labor market stability lifts the chances of a Federal Reserve rate increase, though economists still see a high bar for tighter policy.

U.S. central bank officials are due to begin their two-day policy meeting on Tuesday. Economists expect 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.

An artificial intelligence spending spree is also pushing up imported capital goods prices, adding another source of cost pressure for businesses. That trend suggests trade-related price measures are increasingly reflecting both commodity shocks and stronger investment demand.

In our earlier article on oil extending its decline as traders weighed a tentative U.S.-Iran agreement, we explained how expectations of reopening the Strait of Hormuz helped reduce the war premium in crude. We also noted that despite the diplomatic progress, the physical restart of tanker flows could take weeks, leaving supply risks, inventories, and demand signals as ongoing drivers for energy prices.

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