Import Prices Fell 1% in May, as Food and Energy Costs Ebbed WASHINGTON (Reuters) - Prices of imported goods in the United States posted their largest decline in nearly two years in May as energy and food costs fell, pointing to muted inflation pressures amid slowing global demand. The Labor Department said on Tuesday that import prices fell 1.0 percent, the biggest drop since June 2010, after being flat in April. In the 12 months to May, import prices fell 0.3 percent, posting their first year-on-year decline since October 2009, also reflecting a stronger dollar. The data was the latest sign that falling energy prices were keeping inflation pressures well contained and offered evidence of weakening global demand as the debt crisis in Europe worsened. Against the backdrop of a sputtering economic recovery, economists said the benign inflation environment gave the Federal Reserve some scope to ease policy further through either another round of government bond purchases, also known as quantitative easing, or other measures to keep interest rates down. "Price pressures have come off sharply since April," said Ellen Zentner, senior economist at Nomura Securities, "giving the Federal Open Market Committee some breathing room should they want to implement more quantitative easing." But the Fed is not expected to announce new policy initiatives at its two-day meeting next week. Economic activity has cooled off significantly, with job growth braking sharply in the past three months. Last month, imported petroleum prices dropped 4.2 percent, the largest fall in two years, after slipping 0.7 percent in April. Weak petroleum prices should help to further lower the cost of gasoline, freeing up income for households. Imported food prices fell 0.7 percent last month after edging up 0.1 percent in April. Outside fuels and food, import prices were unchanged, with the cost of automobiles and industrial supplies and materials declining.