Key insights
- US CPI surged to a three-year high of 4.2% in May, driven by a significant rise in fuel prices due to the Iran war impacting oil supplies. Core inflation also ticked up, indicating broader price pressures. While gasoline prices have eased slightly since late May, they remain elevated. This persistent inflation, well above the Fed's 2% target, raises concerns about cost-of-living and may pressure the Federal Reserve to consider policy tightening sooner than anticipated, potentially impacting equity markets negatively.
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An official government report has confirmed what you may have already noticed at the gas station and grocery store: inflation is on the rise.
The Consumer Price Index rose 4.2% over 12 months in May, the Bureau of Labor Statistics said Wednesday.1 That's up from a 3.8% annual increase in April and the highest since April 2023.2
The jump was in line with forecaster expectations, mainly reflecting a surge in fuel prices driven by the Iran war, which has effectively cut off oil supplies from the Middle East. "Core" prices excluding food and energy rose 2.9% over 12 months, up from 2.8% in April, an indication that higher transportation costs are being passed along into other products.
Although gasoline prices have fallen since late May, they remain well above pre-war levels, with a gallon of regular averaging $4.15 compared to $2.98 at the end of February, according to AAA.3 The price hikes have added to the cost-of-living worries that have piled up since the pandemic: key inflation measures have been above the Federal Reserve's 2% annual target since 2021.
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