Inflation Reaches 4.2 Percent in May, Its Highest Level in Three Years

Consumer prices rose 4.2 percent in May from a year earlier, the highest annual rate since April 2023, according to the Labor Department’s Consumer Price Index, reported by CBS News, NBC News and the Associated Press. The rate was up from 3.8 percent in April and 2.4 percent in January. It matched what economists surveyed by FactSet had forecast, CBS reported. Prices rose 0.5 percent from April, the AP reported.

Energy did most of the damage. Energy accounted for more than 60 percent of May’s monthly increase, according to CBS and NBC. Gasoline was up 40.5 percent from a year earlier, CBS reported. The AP tied the jump to Iran’s closure of the Strait of Hormuz, which it said has cut off about a fifth of the world’s oil supply. The national average price of gasoline rose from about $4.04 in mid-April to $4.49 in mid-May, the AP reported, citing the Energy Information Administration. The AP said AAA had it back near $4.16, which could produce a cooler reading for June. Diesel costs have pushed up shipping, and UPS and FedEx added fuel surcharges.

Outside energy, the picture was calmer. Core prices, which exclude food and energy, rose 2.9 percent over the year, up from 2.8 percent in April, and 0.2 percent for the month, NBC reported. Prices for new vehicles, furniture and prescription drugs fell, according to CBS, which said some goods prices dropped for the first time in 14 months. Food at home was up 2.7 percent over the year by CBS’s count, with tomatoes up 32 percent and coffee up 17.5 percent.

Wages are not keeping up. NBC reported that inflation has outpaced wage growth for two straight months and that real average weekly earnings fell 0.7 percent from a year earlier, the steepest annual drop since February 2023. A CBS News poll found that three-quarters of Americans say their incomes are not keeping up with inflation.

Economists read the report as an energy shock, not yet a broad one. “Inflation appears contained within energy,” said Mike Skordeles, head of U.S. economics at Truist Financial, according to NBC. Nancy Vanden Houten of Oxford Economics said May could mark the peak for headline CPI and that inflation “will be slow to decline,” CBS reported. NBC noted that Trump has proposed duties on products from 60 countries, which have not been finalized.

The data has changed expectations at the Federal Reserve, led by Chair Kevin Warsh. The AP reported that more officials now expect the next move to be a rate increase rather than a cut, and futures markets price a hike in December. CBS said the Fed’s next meeting is June 17, with CME Group’s FedWatch tool showing a 96 percent chance rates are held. The AP added that hiring improved in May and the economy is still growing, so the Fed does not need cuts to support growth, and that the White House mainly argues rates should not rise.

The politics are plain. NBC reported that majorities in polls disapprove of President Trump’s handling of the cost of living, and analysts see inflation as a liability for Republicans in the fall midterms. Asked about the numbers, Trump said, according to NBC, that prices would come down once the war ends. His case is that the spike comes from the war rather than from domestic policy; NBC noted that in 2024 he promised to cut energy prices by 50 percent within a year of taking office.