May Inflation Hits Three-Year High As Energy Costs Push CPI Up 4.2%

Consumer prices rose as expected in May, with gasoline and energy costs tied to the Middle East conflict adding pressure on households and complicating the Federal Reserve’s rate outlook.

By yourNEWS Media Newsroom

U.S. consumer prices rose at their fastest annual pace in three years in May, as higher gasoline and energy costs added to household financial pressure and strengthened expectations that the Federal Reserve will keep interest rates elevated.

The Consumer Price Index increased 4.2% in the 12 months ending in May, the Labor Department’s Bureau of Labor Statistics said Wednesday. That marked the largest annual gain since April 2023 and matched economists’ forecasts.

On a monthly basis, CPI rose 0.5% in May after climbing 0.6% in April. Economists polled by Reuters had expected both the 4.2% annual increase and the 0.5% monthly gain.

The May report marked the third straight month of strong inflation readings and showed that price pressures remain a major challenge for consumers. Inflation again outpaced wage growth for the second consecutive month, a trend that could weigh on household spending and broader economic growth.

Energy costs were a major driver of the increase. The national average price of gasoline rose 8.8% in May to $4.60 per gallon, according to data from the U.S. Energy Information Administration.

Gasoline prices had jumped more than 50% at one point after the United States and Israel attacked Iran at the end of February. Prices have eased in recent weeks amid a ceasefire, leading some economists to say May could represent the peak for the current rise in CPI.

The broader cost-of-living increase also carries political consequences for President Donald Trump and Republicans as they seek to maintain control of Congress in the November midterm elections. Trump campaigned in 2024 on lowering inflation, but frustration over the economy has contributed to a decline in his approval rating.

Core inflation, which excludes the volatile food and energy categories, also edged higher. Core CPI increased 2.9% in May from a year earlier, up from 2.8% in April. On a monthly basis, core prices rose 0.2% after a 0.4% increase the previous month.

The Federal Reserve uses the Personal Consumption Expenditures Price Indexes as its preferred measure for its 2% inflation target. However, all major inflation gauges remain well above that level.

The report came after data last week showed the economy recorded a third consecutive month of stronger-than-expected job growth in May. The unemployment rate held at 4.3% for the third month in a row.

Financial markets have begun pricing in the possibility of a rate hike, but many economists still believe the Federal Reserve would need to see further evidence before tightening monetary policy again.

For now, the May inflation report gives the central bank additional reason to keep rates unchanged into 2027 as officials weigh persistent price pressures against signs that consumers are increasingly using savings to support spending.