The Labor Department reported Thursday that prices U.S. businesses paid for imports rose in May for the third month in a row as oil prices reached a 17-month high.

The import price index, a gauge of the cost of imports of finished goods and raw materials, increased 0.7% last month after a 1% rise in April, which was the biggest jump in more than two years. Excluding petroleum, import prices rose 0.1% in May-the first increase since January-after declining 0.3 % in April.

"Higher non-oil prices will add to concerns" about inflation, said Melanie Hardy, an economist at Bear, Stearns & Co. in New York, before the report was issued. "The market is worried about higher inflation, and (these figures) would feed into fears.

Analysts surveyed by Bloomberg News had expected May import prices to rise 0.2 %.

Over the 12 months ended in May, import prices fell 1%, the Labor Department reported. In the 12 months ended in May 1998, import prices fell 5.2 %.

Prices of U.S. products exported to other countries were unchanged in May after rising 0.3% in April. Prices for non-agricultural exports rose 0.1 % in May after rising 0.2 % in April. Agricultural export prices rose 0.1 % after a 0.5 % increase in April.

The cost of imported petroleum increased 8% in May after rising 19.4% in April-the biggest jump since October 1990-and 11.8 % in March, the Labor Department reported.

Since the global economic crisis began in the second half of 1997, subdued import prices have helped restrain inflation in the U.S. by making it harder for companies to raise prices.

The consumer price index rose just 1.6 % in 1998-the smallest annual rise since 1986. Since then the pace of inflation picked up as crude oil prices surged. Consumer prices registered a 0.7% increase in April, the biggest monthly rise in almost nine years. Prices in April rose 0.4%, excluding those for food and energy.

With traders and investors looking ahead to the May producer and consumer price reports-due today and Wednesday, respectively-the import price figure is unlikely to have much impact on financial markets.

"If a Fed official says 'Watch out for import prices,' the market will pay attention," said Kevin Harris, an international economist at MCM CurrencyWatch, before the report was released. "But until then, the numbers will slip off the radar."

Concern that the Federal Reserve may soon raise interest rates to avert a pickup in inflation sent Treasury bonds reeling during the past two months, driving 30-year bond yields to their highest level in more than a year.

The government is likely to report today that its producer price index rose 0.2% last month, according to the average of forecasts from 45 analysts surveyed by Bloomberg News. In April the index jumped 0.5 %.

Economists said that consumer prices probably rose 0.2% in May after a three-month rally in crude oil prices ground to a halt early in the month. Oil fell from a 17-month high of $18.98 a barrel on May 5 to end the month at $16.84.

Crude oil prices had soared more than 50% between mid-February and early May as agreements by producers to slash world output by 7% ended a two-year slump in prices and sparked the biggest rally since the Persian Gulf War.

Falling import prices during the past 18 months or so-together with a strong dollar, robust U.S. growth, and weakening economies overseas- contributed to an increase in the U.S. trade deficit.

The gap ballooned to a record $19.7 billion in March.

In Thursday's report, the Labor Department said import prices from Asia fell 0.2% in May. The price of imported goods from Japan rose 0.2%. Prices for imports from the European Union rose 0.1%. The price of imported Canadian goods rose 1.4 %.

The government also reported that prices paid for imported autos and parts increased 0.1%, while consumer goods imports excluding automobiles fell 0.1%. Prices for capital goods fell 0.1%.

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