US consumer prices rose 4.2 percent in the year through May, the Bureau of Labor Statistics reported on Wednesday, the highest annual inflation rate since April 2023 and the third consecutive monthly acceleration. The consumer price index climbed 0.5 percent from April on a seasonally adjusted basis, matching economists' expectations.
The surge is overwhelmingly an energy story. Energy costs jumped 23.5 percent from a year earlier, up from 17.9 percent in April, as the conflict with Iran and repeated disruptions around the Strait of Hormuz pushed crude prices sharply higher. Gasoline alone soared 40.5 percent over the past year, accelerating from a 28.4 percent annual gain the month before.
Beneath the headline number, underlying price pressures looked considerably tamer. Core CPI, which strips out food and energy, rose just 0.2 percent on the month — slower than forecast — leaving the annual core rate at 2.9 percent. Shelter costs ticked up to 3.4 percent annually from 3.3 percent, while food inflation accelerated to 3.1 percent from 2.3 percent.
The divergence between a hot headline and a cooling core leaves the Federal Reserve in an uncomfortable spot. Markets broadly expect the Federal Open Market Committee to hold rates steady when it announces its decision on June 17, treating the energy spike as a supply shock that policy cannot fix — though officials have warned that a prolonged oil shock could feed into broader prices and expectations.
The report gives the inflation debate in Washington a sharper edge. The White House has blamed rising pump prices on Iran's threats to shipping in the Strait of Hormuz, through which roughly a fifth of the world's oil passes, while critics argue the administration's own strikes have kept the crisis — and the risk premium in crude — alive.
For households, the squeeze is concentrated and visible: fuel and food are the categories consumers buy most often, and both are now rising faster than wages in many sectors. Stocks slipped after the release as investors weighed the data against a fresh round of US-Iran strikes overnight, with oil trading near $90 a barrel.