June 12 (Bloomberg) -- Prices of goods imported into the U.S. rose in May for the third straight month, reflecting the increasing cost of oil that threatens to undermine the economy just as it struggles to pull out of the recession. The 1.3 percent gain in the import-price index, the largest since July last year, was in line with forecasts and followed a revised 1.1 percent increase the prior month, the Labor Department said today in Washington. Prices excluding fuels climbed 0.2 percent, while being down by 5.8 percent on an annual basis -- the biggest drop since records began in 1985. Rising commodity costs may worsen the erosion of corporate profits because the deepest economic slump in half a century means businesses have little power to pass on expenses to customers. “Inflation does not pose an immediate threat,” Joseph Brusuelas, a director at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. “A sizable U.S. output gap will keep price pressures subdued well into next year.” Treasuries, which had risen earlier in the day, remained higher after the report. Yields on benchmark 10-year notes dipped to 3.83 percent at 8:43 a.m. in New York from 3.86 percent late yesterday. Economists’ Forecasts Import prices were forecast to rise 1.4 percent, after an initially reported 1.6 percent increase in April, according to the median estimate of 53 economists surveyed by Bloomberg News. Forecasts ranged from a drop of 0.2 percent to a gain of 3.2 percent. Compared with a year earlier, prices of imported goods dropped 17.6 percent, the biggest decrease since records began in 1982. The import-price index is the first of three monthly price gauges from the Labor Department. The index of wholesale prices is due on June 16, followed by the consumer price gauge the next day. The reports are may show price pressures are tame, excluding the surge in fuel costs, according to economists surveyed. The price of imported petroleum and petroleum products increased 8.3 percent, the fourth straight gain. Still prices were 51 percent lower than a year earlier. The measure will likely be up again this month. Crude oil futures on the New York Mercantile Exchange averaged $59.21 a barrel in May, up about $10 from the prior month. The contract jumped above $73 a barrel yesterday. Dollar’s Drop A slumping dollar may put a floor under the cost of imported goods in coming months. It was down 8.8 percent through last week against a trade-weighted basket of currencies of major U.S. trading partners since reaching a five-year high in March. Today’s report showed the cost of imported capital goods, such as generators, machinery and trucks, was unchanged last month. Consumer goods excluding automobiles were also unchanged in May and were down 0.6 percent over the last 12 months, the biggest drop since 2003. Prices of imported automobiles, parts and engines climbed 0.3 percent, the first increase since January. Prices of goods from China dropped 0.1 percent, the ninth straight decrease, those from Japan and the European Union were unchanged. Products from Latin America cost 2.6 percent more. U.S. exports prices rose 0.6 percent after increasing 0.4 percent the prior month. Prices of farm exports climbed 3.6 percent, while those of non-farm exports were up 0.3 percent. Beige Book Federal Reserve officials, in their Beige Book business survey released on June 10, said price pressures were contained. “With few exceptions, Districts reported that prices at all stages of production were generally flat or falling,” the Fed said in the survey. “The notable exception to the downward pressure on prices was the widely-reported increase in oil prices.” Bankruptcies at General Motors Corp. and Chrysler LLC have caused thousands of car dealers to offer discounts to attract customers. Steel prices in the U.S. tumbled in May to a five-year low as builders and manufacturers withheld orders. The industry is using less than half of its capacity, in part because of weak demand and competition from imports from China and Canada. AK Steel Holding Corp., the fourth-largest U.S.-based steelmaker, said it may idle production at a factory in Kentucky.

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