WASHINGTON (Reuters): -U.S. import prices unexpectedly fell in May amid lower prices for energy products, providing another boost to the domestic inflation outlook.

The report from the Labour Department on Friday combined with data this week showing tame inflation readings last month to keep a September interest rate cut from the Federal Reserve on the table. U.S. central bank officials on Wednesday pushed out the start of rate cuts to perhaps as late as December, with policymakers projecting only a single quarter-percentage-point reduction for this year.

“Fed officials did not see what they were hoping for in the inflation trend when they met earlier this week, but the winds of change are coming for those bearish inflation outlooks,” said Christopher Rupkey, chief economist at FWDBONDS.

“We would not rule out a first-rate cut in September. The decline in imported goods prices will surely be welcomed by inflation-weary consumers.”

Import prices dropped 0.4 per cent last month after an unrevised 0.9 per cent surge in April, the Labour Department’s Bureau of Labor Statistics said on Friday. That was the first decline in import prices since December. Economists polled by Reuters had expected import prices, which exclude tariffs, to edge up 0.1 per cent.

In the 12 months through May, import prices increased by 1.1 per cent, matching April’s rise.

The Fed on Wednesday kept its benchmark overnight interest rate in the current 5.25 per cent-5.50 per cent range, where it has been since last July. Economists and financial markets remain optimistic that the Fed will start its easing cycle in September and lower borrowing costs twice. The Fed has raised its policy rate by 525 basis points since March 2022.

Imported fuel prices dropped 2.0 per cent in May after advancing 4.1 per cent in April. There were sharp decreases in the prices of crude petroleum and natural gas.

The cost of imported food plunged 1.6 per cent after rising 1.3 per cent in April. Excluding fuels and food, import prices fell 0.2 per cent. These so-called core import prices jumped 0.6 per cent in April. They had popped up despite the dollar strengthening against the currencies of the United States’ main trade partners this year.

Core import prices gained 0.1 per cent year-on-year in May. The firmer import price readings in prior months were noted by policymakers, with Fed Chair Jerome Powell telling reporters on Wednesday that “there has been a surprising increase in import prices on goods, which is kind of hard to understand.”

Prices for imported capital goods fell 0.1 per cent last month, reversing April’s 0.1 per cent gain. The cost of motor vehicles, parts and engines dipped 0.1 per cent after rising 0.4 per cent in April.

Imported consumer goods prices fell 0.2 per cent, declining for a third straight month.

The cost of imported goods from China decreased by 0.2 per cent after being unchanged for two consecutive months. Prices dropped 2.1 per cent year-on-year in May. Imported goods from Canada and Mexico were also cheaper, but imports from the European Union cost more.

The government also reported that prices for U.S. exports declined 0.6 per cent in May, reversing the prior month’s 0.6 per cent increase. The first monthly decrease since December reflected a 0.8 per cent drop in nonagricultural prices. Prices for agricultural exports rose 0.5 per cent, lifted by higher prices for wheat, fruit, corn and meat.

Export prices rebounded 0.6 per cent year-on-year in May after slipping 0.9 per cent in April.