US inflation hit a three-year high in May, mainly due to rising energy prices linked to global supply disruptions following the Iran conflict, according to official data released on Wednesday.The US Labor Department said the consumer price index (CPI) rose 4.2% in May from a year earlier, up from 3.8% in April.This is the third consecutive monthly increase and the highest level since April 2023.On a monthly basis, prices rose 0.5% after rising 0.6% in April and 0.9% in March.The increase has increased pressure on the Federal Reserve, which targets 2% inflation, and is also being seen as a political challenge to the Trump administration ahead of the upcoming midterm elections.
energy shock causes price increase
Much of the increase in inflation was linked to higher energy costs.Gasoline and broader fuel prices rose after tensions in the Middle East disrupted oil flows, especially after reports of Iran closing the Strait of Hormuz, a key global shipping route that carries about a fifth of the world’s oil.Energy prices rose 23.5% year-over-year in May, while gasoline prices rose 40.5%. Grocery prices also rose 2.7% from a year earlier, adding to household pressures.According to news agency AP, price increases outside energy were relatively more moderate, suggesting that inflation has not yet spread widely throughout the economy.Gas prices have declined recently, which may help moderate inflation in upcoming readings.
core inflation shows mixed signals
Excluding food and energy, so-called core inflation rose 0.2% month-on-month in May, down from 0.4% in April. On an annual basis, the core CPI rose 2.9%, up slightly from 2.8% in April, according to the AP and AFP.Prices still rose across several categories, including clothing, airline fares and electricity.Airline fares rose 2.7% in May and are up nearly 27% year-over-year.
Fed outlook and market reaction
Inflation trends have complicated expectations for US monetary policy. Markets are now considering the possibility of a rate hike later in the year, while the Federal Reserve prepares for its upcoming policy meeting.Stubborn inflation has shifted expectations among policymakers, with some suggesting that rates may need to be kept high or even raised further to control price pressures.Despite inflation, the US economy appears resilient with steady job growth and continued expansion, reducing immediate pressure on the Fed to cut rates.President Donald Trump has argued that the shock to prices from energy markets would be temporary and linked to geopolitical tensions, with hopes that a peace deal could stabilize markets.The rise in inflation comes at a politically sensitive time, with the high cost of living remaining a central issue for US voters ahead of the November midterm elections.Rising fuel costs have also pushed up shipping expenses, with logistics companies imposing fuel surcharges, potentially leading to inflation in consumer goods.