Key facts
- US inflation accelerated for a third consecutive month in May, reaching a 3-year high.
- The Consumer Price Index (CPI) rose 4.2% year-over-year in May.
- Energy prices surged 23.5% year-over-year, with gasoline averaging $4.24 per gallon.
- Core inflation, excluding volatile food and energy, increased 2.9% year-over-year.
- Real hourly earnings have fallen 0.7% over the past year.
- US stocks and the dollar index saw modest declines following the report.
U.S. inflation accelerated for a third consecutive month in May, reaching its fastest pace in three years as energy prices surged amid a stalemate in negotiations to end the war with Iran. The Consumer Price Index (CPI) rose 4.2% from a year earlier, a significant jump from the 2.4% annual increase before the conflict began in February.
Energy prices were the primary driver, up 23.5% year-over-year. The average price for a gallon of gasoline reached $4.24, more than a dollar higher than the previous year. This surge in energy costs has outpaced wage increases, with real hourly earnings falling 0.7% over the past year, leaving consumers with less purchasing power.
Despite the headline inflation figures, core inflation, which excludes volatile food and energy prices, showed a more moderate increase. The core CPI rose 2.9% year-over-year and 0.2% for the month, a slower pace than in April. Prices for durable goods, such as new vehicles and household furnishings, also showed tame increases or declines, suggesting that tariffs imposed last year have largely been absorbed.
Some categories, like autos and health insurance, have seen price decreases, normalizing from pandemic-era booms. The White House highlighted these declines as evidence of positive results from President Donald Trump's economic agenda.
However, consumer sentiment remains subdued, with many dipping into savings to finance spending. Retailers like Dollar General have noted customers pulling back on purchases due to high gas prices. The Federal Reserve, which is set to meet soon to decide on interest rates, is closely watching both headline and core inflation figures.