Customers shop at a supermarket on August 14, 2024 in Arlington, Virginia.
Xia Hanting | China News Service | Getty Images
Inflation accelerated in May as rising energy costs became painful for consumers, but underlying pressures were less strong.
The Consumer Price Index, a broad gauge of the cost of goods and services across the U.S. economy, rose a seasonally adjusted 0.5% this month, bringing the annual inflation rate to 4.2%, the Bureau of Labor Statistics reported Wednesday. Both numbers were in line with the Dow Jones consensus.
The inflation rate exceeded 4% for the first time in three years, meeting expectations amid concerns about how high energy prices will affect the economy. This level is the highest since April 2023 and exceeded the 3.8% level in April.
But excluding volatile food and energy prices, the so-called core CPI rose 0.2% in the month and 2.9% year-on-year. Although the annual rate was in line with expectations, the monthly rate of increase was lower than the expected 0.3% increase and was also lower than the 0.4% increase in April.
The report comes at a sensitive time for markets and policymakers, as Federal Reserve officials consider their next move on interest rates. Investors will be looking for signs of how worried regulators are about soaring inflation, although most expect the rate-setting Federal Open Market Committee to remain on hold when its decision is announced on June 17.
As the United States becomes embroiled in a hostile relationship with Iran, there are growing concerns that rising oil prices could spill over into other energy-sensitive parts of the economy. Markets were jolted again on Wednesday after President Donald Trump warned that Iran “will pay a price” for not accepting the peace deal.
Stock market futures remained in negative territory, but after the CPI was announced, they fell to a low and US Treasury yields remained flat.
Much of the spike in inflation was due to a 3.9% rise in energy prices, taking the 12-month rise to 23.5%, the report said. Food prices accelerated by only 0.2%, and housing costs, a key input for Fed policy, rose 0.3%, half of April’s growth.
Elsewhere, transport services fell 0.6%, a potential indicator that high energy costs have not spilled over to other sectors, while new car prices fell 0.3% and used cars and trucks edged up 0.1%.
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