Consumer prices rose at their fastest annual rate since April 2023, driven largely by energy costs tied to the Iran war and Strait of Hormuz disruptions.
3:19 PM
U.S. inflation accelerated to 4.2% in May on an annual basis, marking the highest level in more than three years, according to a Labor Department report released Wednesday. The figure represents a jump from 3.8% in April and aligns with economist forecasts polled by financial data firm FactSet.
The Consumer Price Index, which tracks changes in prices for a basket of goods and services typically purchased by consumers, rose 0.5% between April and May. Energy costs accounted for more than 60% of that monthly increase, the Bureau of Labor Statistics said.
Inflation has accelerated steadily since January, when the annual rate stood at 2.4%. The acceleration has been driven largely by the energy shock stemming from the U.S. and Israel's war with Iran. The closure of the Strait of Hormuz, a critical pathway for global energy supplies, has disrupted supply chains and driven up prices across multiple sectors, from gasoline to airfares.
Gasoline prices have surged significantly since the conflict began. Average petrol prices reached $4.15 per gallon, up from $2.98 when the U.S. and Israel first struck Iran. Year-over-year, gasoline prices jumped 40.5%. Overall energy bills, including gas and electricity, were nearly a quarter higher in May compared with a year earlier.
The last time inflation reached this level was in April 2023, when the U.S. was still contending with energy shocks from Russia's invasion of Ukraine. The current surge comes as the Federal Reserve prepares for a policy meeting next week. Higher inflation typically raises the likelihood that the central bank will consider raising interest rates in an effort to curtail spending.
Real wage growth has lagged behind price increases. The Labor Department reported that average wages have risen only 3.4% over the last year, meaning workers' real spending power has declined as inflation has outpaced wage growth. Households have increasingly felt the strain of elevated prices as the conflict in Iran continues to disrupt global energy markets.
Fuel prices have eased slightly in June, according to reports, though they remain elevated compared with pre-conflict levels.
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