US inflation hits 3-year high in May as Middle East conflict raises gas, energy prices

U.S. consumer prices surged in May, reaching their highest level in three years, as escalating tensions in the Middle East pushed up gasoline and energy costs. The Consumer Price Index (CPI) climbed 4.2% over the 12 months ending in May, marking the most significant annual increase since April 2023, according to the Bureau of Labor Statistics. This marks the third consecutive month of substantial CPI gains, indicating growing financial strain on American households. Many consumers are reportedly drawing down savings to cover expenses, with inflation now exceeding wage growth for the second month in a row. This trend could dampen overall economic expansion. The rising cost of living presents a significant political challenge for President Donald Trump and the Republican Party as they aim to maintain control of Congress in the upcoming November elections. Trump's promise to lower inflation was a key factor in his 2024 presidential victory, but his approval ratings have declined amid public frustration with his economic policies. Core CPI, which excludes volatile food and energy prices, rose 2.9% year-on-year in May, a slight uptick from April's 2.8%. Monthly core CPI increased by 0.2%, slowing from the previous month's 0.4% rise. The Federal Reserve closely monitors the Personal Consumption Expenditures Price Index for its 2% inflation goal, and all current inflation indicators significantly exceed this target. Gasoline prices saw a notable jump, increasing 8.8% in May to an average of $4.60 per gallon, according to the U.S. Energy Information Administration. Prices had surged over 50% following military actions by the U.S. and Israel against Iran in late February. However, recent weeks have seen a retreat in fuel costs amid a ceasefire, leading some economists to cautiously anticipate that May might represent the peak of the CPI increase. This inflation report follows recent data showing the economy added more jobs than expected for the third straight month in May, with the unemployment rate holding steady at 4.3%. Despite financial markets beginning to factor in potential interest rate hikes, economists generally believe the Federal Reserve faces a high threshold for tightening monetary policy.

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The Consumer Price Index increased 4.2 per cent in the 12 months through May, the largest gain since April 2023.