Key facts
- US annual inflation reached 4.2% in May, the highest since April 2023.
- Inflation has now outpaced wage growth for two consecutive months.
- Energy prices jumped 23.5% year-over-year in May, accounting for over 60% of the monthly CPI rise.
- Core CPI, excluding food and energy, increased 2.9% year-over-year.
- The Federal Reserve is expected to hold interest rates steady at its next meeting.
U.S. consumer inflation increased at its fastest pace in three years in May, with the Consumer Price Index (CPI) rising 4.2% year-over-year. This marks the largest gain since April 2023 and underscores mounting pressure on households, who are increasingly tapping savings to fund spending. Inflation outpaced wage growth for a second consecutive month, with average hourly earnings rising 3.4% year-over-year, leading to a 0.7% decline in real earnings over the year.
Surging energy prices, up 23.5% year-over-year, accounted for over 60% of the monthly CPI increase. Gasoline prices alone jumped 40.5% from a year ago. While core inflation, excluding volatile food and energy components, slowed to a 0.2% monthly gain and a 2.9% annual increase, rents also remained elevated, rising 0.4% for the month.
Economists suggest that ongoing geopolitical tensions in the Middle East could keep inflation elevated. The Federal Reserve, which tracks the Personal Consumption Expenditures Price Index for its 2% inflation target, is widely expected to leave interest rates unchanged at its upcoming meeting, with markets pricing in a high probability of no change.