According to a report from Reuters, 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 Labor Department on Wednesday underscored the mounting pressure on households, who are increasingly tapping their savings to fund spending.
Inflation outpaced wage growth for a second consecutive month, 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.
“Americans are getting squeezed financially by inflation,” said Heather Long, chief economist at Navy Federal Credit Union. “It’s not just bad vibes about the economy now; there are real financial pressures, especially on middle-class and lower-income households.”
The Consumer Price Index increased 4.2% in the 12 months through May, the largest gain since April 2023, the Labor Department’s Bureau of Labor Statistics said. The CPI advanced 3.8% year-on-year in April. Prices increased 0.5% over the month after climbing 0.6% in April. The rise in inflation was in line with economists’ expectations.
The U.S. central bank tracks the Personal Consumption Expenditures Price Indexes for its 2% inflation target. All inflation measures are running well above the Fed’s target.
A 3.9% jump in the prices 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.
Click here for the full report from Reuters.
