WASHINGTON — Inflation accelerated to its highest annual rate in more than three years during May as higher energy prices linked to the conflict involving Iran pushed overall consumer costs upward, according to data released Wednesday by the U.S. Department of Labor’s Bureau of Labor Statistics.
Consumer prices increased 4.2% in May from a year earlier, up from 3.8% in April and marking the highest annual inflation rate since April 2023, the Bureau of Labor Statistics reported.
Despite the stronger year-over-year reading, monthly inflation showed signs of moderation. The Consumer Price Index rose 0.5% in May from April, slightly below the 0.6% increase recorded in April and the 0.9% gain in March. The monthly increase matched economists’ expectations.
The Labor Department said the energy index accounted for more than 60% of the monthly increase in consumer prices, underscoring the role higher fuel and energy costs played in driving inflation during the month.
Core Inflation Up 2.9%
Excluding the volatile food and energy categories, so-called core inflation rose 2.9% from a year earlier, up slightly from 2.8% in April and in line with economists’ forecasts. On a monthly basis, core prices increased 0.2%, cooling from 0.4% in April and coming in below expectations for a 0.3% gain.
Economists generally view core inflation as a better indicator of underlying price trends because it strips out categories that can experience sharp short-term swings.
In a statement, America’s Credit Unions Senior Economist Dawit Kebede said the report presented a mixed picture for policymakers.
“May’s CPI report offers a mixed but concerning picture,” Kebede said. “Headline inflation surged to a three-year high driven by energy prices, while core prices posted a moderate monthly gain, with core goods actually declining and shelter costs easing back toward more normal levels. With inflation accelerating and labor markets holding firm, the Fed’s balance of risks has shifted more toward inflation. Markets are already pricing in a higher probability of a rate hike before year-end.”
According to reporting by The New York Times, the moderation in monthly price increases suggested that the sharp rise in energy costs may have peaked and could be beginning to soften, even as annual inflation continued to climb.
Potential ‘Peak’ of Inflation
Economists told several news outlets that May’s reading likely represents the peak of the recent inflation surge tied to this year’s energy-price shock, assuming gasoline prices continue their recent decline and do not spike again because of renewed disruptions in the Strait of Hormuz. Analysts noted that the May figures were largely in line with market expectations.
The inflation report comes as officials at the Federal Reserve continue to weigh the risks of persistent inflation against broader economic conditions and labor market performance. With employment remaining relatively strong and inflation moving higher, investors have increased expectations that the central bank could consider additional interest-rate increases before the end of the year.
