Washington, DC, Jun. 10--Prices of imported goods rose at the fastest clip in 15 months in May as petroleum prices surged, surprising Wall Street and indicating the global economic recovery is fanning inflation.
The Labor Department said today that overall import prices rose 1.6% in May after a 0.2% gain in April. The acceleration mainly reflected a surge in energy prices, which climbed 10.3%--the biggest increase since February 2003. But even excluding the volatile energy category, import prices grew 0.4% after a 0.3% increase in April.
The increase in overall import prices, twice as large as the 0.8% rise Wall Street had expected, validated the Federal Reserve's view inflation is gradually reemerging as a risk to the economy. Most Fed policy makers expect inflation to remain tame this year, but they've said they're also prepared for the possibility that they could be wrong.
Fed Chairman Alan Greenspan, speaking to a group of economists and central bankers in London Tuesday, said that persistently high oil prices could trigger a general bout of inflation and warned that the central bank may raise interest rates aggressively if its current expectation of low inflation proves to be wrong. The Fed will do "what is required to fulfill our obligations" to maintain price stability, the chairman said.
At the start of the year, the Fed expected the broadest measure of inflation--the price index for personal consumption expenditures, excluding food and energy items--to rise no more than 1.25% in 2004. However, in the 12 months through May, that index was up 1.4%. As a result, most economists expect the Fed to raise its key interest rate at the end of June.
Import prices have now risen for seven consecutive months, marking the longest string of monthly increases since the mid-1990s. During the 12 months through May, import prices were up 7%--compared with a 4.6% gain for the year through April. Prices of non-oil imports were up 3% in the year through May, marking the largest increase since September 1995.
The report showed that prices of goods imported from Latin America registered the biggest increase in May--a 1.9% gain that was more than double the increase in April. Prices of Canadian imports rose for a seventh month in a row, climbing 1.6%.
Prices of imports from the European Union were unchanged in May, while prices of Japanese imports rose 0.2%, more than reversing a 0.1% decline in April. But prices of imports from Hong Kong, Taiwan, Singapore and South Korea rose 0.2%, slowing after a 0.6% gain in April.
Export prices rose for a ninth month in a row, climbing 0.3%.
