WASHINGTON, June 12 — US import prices increased by the most in more than a year in May, driven by higher costs for petroleum products and food, which could further diminish fears of deflation as the economy battles a recession.

The report from the Labour Department today followed data this week showing consumer prices falling moderately in May and a solid rebound in producer prices.

Deflation is a decline in the general price level, which is harmful during a recession as consumers and businesses may delay purchases in anticipation of lower prices. The National Bureau of Economic Research, the arbiter of US recessions, declared on Monday that the economy slipped into recession in February.

"These gains should support June increases for CPI and PPI,” said Mike Englund, chief economist at Action Economics in Boulder, Colorado. "Trade prices should rise further in June with oil prices, alongside a lift from a drop-back in the value of the dollar, though we have an ongoing headwind from demand destruction with global shutdowns.”

Import prices rose 1.0 per cent last month, the largest gain since February 2019, after falling 2.6 per cent in April. Economists polled by Reuters had forecast import prices, which exclude tariffs, increasing 0.6 per cent in May. In the 12 months through May, import prices decreased 6.0 per cent after dropping 6.8 per cent in April.

The Federal Reserve, which tracks the core personal consumption expenditures price index for its 2 per cent inflation target, sharply lowered its inflation projections on Wednesday. The US central bank projected core inflation rising 1.0 per cent this year and picking up to 1.5 per cent in 2021. Back in December, it forecast inflation at 1.9 per cent this year and 2 per cent in 2021.

Stocks on Wall Street were trading higher after tumbling in the previous session on fears of a resurgence in Covid-19 infections. The dollar was steady against a basket of currencies. US Treasury prices fell.

Export prices increase

In May, prices for imported fuels and lubricants surged 20.5 per cent after declining 31.0 per cent in the prior month. Petroleum prices jumped 21.7 per cent after plunging 32.6 per cent in April. Imported food prices rebounded 2.2 per cent last month after dropping 1.6 per cent in April.

Excluding fuels and food, import prices dipped 0.1 per cent last month after falling 0.5 per cent in April. The so-called core import prices declined 0.7 per cent in the 12 months through May.

The cost of goods imported from China was unchanged in May after gaining 0.1 per cent in the prior month. Prices declined 1.0 per cent year-on-year in May, the smallest drop since March 2019.

Last month, prices for imported capital goods was unchanged. The cost of imported motor vehicles dipped 0.1 per cent. Prices for consumer goods excluding autos rose 0.1 per cent.

The report also showed export prices increased 0.5 per cent in May as higher prices for non-agricultural products offset lower prices for agricultural goods. That followed a 3.3 per cent drop in April. Export prices declined 6.0 per cent on a year-on-year basis in May after dropping 6.8 per cent in April.

Prices for agricultural exports declined 0.5 per cent, pulled down by weaker prices for corn, dairy products and soybeans. That more than offset higher prices for meat, vegetables and cotton. Agricultural export prices fell 3.5 per cent year-on-year.

Non-agricultural export prices rose 0.6 per cent, boosted by higher prices for industrial supplies and materials, which overcame decreases in prices for capital goods, consumer goods, automotive vehicles, and non-agricultural foods. — REuters