WASHINGTON: U.S. consumer inflation increased at its fastest pace in three years in May as the Middle East conflict raised the price of gasoline and other energy products, giving more ammunition for the Federal Reserve to keep interest rates unchanged into 2027. 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 on Wednesday. The CPI advanced 3.8% year-on-year in April. Prices increased 0.5% on a monthly basis after climbing 0.6% in April.
Economists polled by Reuters had forecast the CPI increasing 4.2% year-on-year and gaining 0.5% on a monthly basis.
The third straight month of strong increases in the CPI highlighted mounting pressure on households as evidence suggests more consumers are dipping into savings to finance their spending. Inflation outpaced wage growth for a second consecutive month, which could weigh on overall economic growth.
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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.
Excluding the volatile food and energy components, core CPI increased 2.9% year-on-year in May after rising 2.8% in April. The so-called core CPI gained 0.2% on a monthly basis after rising 0.4% in April. 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.
The national average gasoline price increased 8.8% in May to $4.60 a gallon, data from the U.S. Energy Information Administration showed. At one point, gasoline prices had jumped by more than 50% since the U.S. and Israel attacked Iran at the end of February. Prices have retreated in recent weeks amid a ceasefire, leaving some economists cautiously hopeful that May could mark the peak in the CPI.
The report followed news last week that the economy posted a third successive month of above-expectations job growth in May. The unemployment rate remained at 4.3% for a third consecutive month. Though financial markets have started pricing in a rate hike, economists continued to believe the bar remained high for the central bank to tighten monetary policy.
