Economic Report: Import prices drop 0.3% in May, act as brake on U.S. inflation

The cost of imports have declined even though tariffs have raised the prices of certain goods.

The numbers: The cost of imported goods fell in May, reflecting a decline in the prices of most foreign-made goods including those coming from China that have been hit with U.S. tariffs.

The import price index dropped 0.3% last month, the government said Thursday. Import prices fell by the same amount even if fuel is excluded, .

Read: Why the U.S.-China trade deficit is so huge: Here’s all the stuff America imports

What happened: The cost of fuel imports sank 1% last month, partly reversing a big increase in the first four months of the year. Global oil prices have receded from recent highs.

The weakness was widespread, however. The cost of imported foods and industrial supplies also declined in May.

Similarly, the price of U.S. exports are declining. Export prices dipped 0.2% in May and have fallen almost 1% in the past year.

Big picture: Inflation in the U.S. is hovering around 2% and the falling cost of imports is helping to suppress price pressures. Overall, import prices have dropped 1.5% in the past 12 months, matching January for the largest decline since the fall of 2016.

By contrast, import prices were rising at a 4.5% annual clip a year earlier.

U.S.-imposed tariffs are not included in the import price index. It only measures the price of imports before tariffs are added.

Yet the cost of Chinese imports even before tariffs have dropped 1.4% in the past year, the biggest 12-month decline since last September.

The prices American exporters fetch for goods sold in China have declined even more steeply, however.

Read: Trump takes a page out of early American history with steep tariffs on Chinese goods

Also Read: The price spikes for appliances after Trump’s tariffs are fading away

Market reaction: The Dow Jones Industrial Average DJIA, -0.17% and S&P 500 SPX, -0.20% were set to open lower in Thursday trades after reports of a possible attack on oil tankers in the Mideast.

The 10-year Treasury yield TMUBMUSD10Y, -0.41% was little changed at 2.12%.

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