Business News : Weak oil, food prices dampen U.S. imported inflation

WASHINGTON (Business News) - U.S. import prices recorded their largest decline in nearly two years in May as energy and food costs fell, government data showed on Tuesday, pointing to muted inflation pressures.

Overall import prices fell 1.0 percent, the biggest drop since June 2010, the Labor Department said. April's data was revised to show a flat reading instead of the previously reported 0.5 percent drop.

The decline last month was in line with economists' expectations. In the 12 months to May, import prices fell 0.3 percent, posting their first year-on-year decline since October 2009.

Stripping out fuels and food, import prices were unchanged, dampened by weak costs for imported industrial supplies and materials and autos. The price for imported capital goods was unchanged last month.

The data was the latest sign that broader inflation pressures remained benign - in line with the Federal Reserve's view and potentially evidence of weaker global demand amid a worsening debt crisis in Europe.

"Price pr essures have come off sharply since April...giving the Federal Open Market Committee some breathing room should they want to implement more quantitative easing and alleviating pressure on margins for businesses, while freeing up some discretionary income for households," said Ellen Zentner, senior economist at Nomura Securities in New York.

The cloud of uncertainty from the euro zone crisis has been blamed for last month's sharp pull back in U.S. job creation and is sapping business confidence.

In a separate report, the National Federation of Independent Business said its Small Business Optimism Index eased 0.1 percentage points to 94.4 in May.

Ian Shepherdson, chief U.S. economist at High Frequency Economics said the tiny decline was a relief, considering the weakness in stock prices lately.

"The danger is not over yet, given th e variability of the links between movements in stock prices and the survey, but so far the damage is slight," he said.

Data on Wednesday is expected to show that weak energy costs depressed wholesale prices in May for a third month in a row, according to a Business News survey.

Outside food and energy, producer prices are expected to have remained muted, with an increase of 0.2 percent forecast after rising by the same margin in April.

Last month, imported petroleum prices dropped 4.2 percent, the largest fall in two years, after slipping 0.4 percent in April.

Weak petroleum prices should help to further lower the cost of gasoline and aid the sputtering economic recovery. Imported food prices fell 0.7 percent last month after edging up 0.1 percent in April.

Elsewhere, imported industrial supplies and material prices fell 2.7 percent, the biggest fall in nearly two years, after dipping 0.3 percent the prior month.

Imported capital goods prices were unchanged after slipping 0.1 percent the prior month. Imported motor vehicle prices fell 0.1 percent after increasing 0.7 percent in April.

The Labor Department report also showed export prices fell 0.4 percent last month, the first drop since December and a bigger decline than the 0.1 percent fall forecast by economists. Export prices increased 0.4 percent in April.

In the 12 months to May, export prices slipped 0.1 percent, the first year-on-year fall since October 2009.