US Consumer Inflation Vaults Above 4% As Iran War Boosts Energy Prices

  • U.S. consumer inflation increased at its fastest pace in three years in May, boosted by surging prices for energy products amid the Middle East conflict, and giving more ammunition for the Federal Reserve to keep interest rates unchanged into 2027. The third straight month of ​strong increases in the Consumer Price Index reported by the Labour Department on Wednesday underscored the mounting pressure on households, which are increasingly tapping their savings to fund spending.
  • Inflation eroded wages for a second ‌consecutive month in May, which could weigh on overall economic growth. The soaring cost of living is a political liability for President Donald Trump and his Republican Party, seeking to retain control of Congress in the midterm elections in November. Trump won the 2024 presidential election in large part because of his promise to lower inflation, but has seen his approval rating tumble as frustration mounts over his handling of the economy.
  • The U.S. central bank tracks the Personal Consumption Expenditure Price Index for its 2% inflation ⁠ All inflation measures are running well above the Fed's target. Real average hourly earnings dropped 0.7% in the 12 months through May after falling 0.3% in April.
  • The Consumer Price Index ​(CPI) increased 4.2% in the 12 months through May, the largest gain since April 2023, the Labour Department's Bureau of Labour Statistics said. The CPI advanced 3.8% year-on-year in April and rose 3.3% in March. Prices increased 0.5% over ​the month after climbing 0.6% in April. The rise in inflation was in line with economists' expectations.
  • A 3.9% jump in the price of energy goods accounted for more than 60% of the rise in the monthly CPI. Energy prices rose ​3.8% in April. They vaulted 23.5% in the 12 months through May. Gasoline prices accelerated 7.0% over the month and were up 40.5% from a year ago. Prices at the pump have retreated in recent weeks as oil prices eased, raising cautious optimism among economists that May could be the peak in CPI inflation.

(Source: Reuters)