US 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 percent 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 percent year-on-year in April. Prices increased 0.5 percent on a monthly basis after climbing 0.6 percent in April.
Economists polled by Reuters had forecast the CPI increasing 4.2 percent year-on-year and gaining 0.5 percent 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.
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 percent year-on-year in May after rising 2.8 percent in April. The so-called core CPI gained 0.2 percent on a monthly basis after rising 0.4 percent in April.
The US central bank tracks the Personal Consumption Expenditures Price Indexes for its 2 percent inflation target. All inflation measures are running well above the Fed's target.
The national average gasoline price increased 8.8 percent in May to US$4.60 a gallon, data from the US Energy Information Administration showed. At one point, gasoline prices had jumped by more than 50 percent since the US 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 percent 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.
Reuters
