U.S. consumer inflation rose at the fastest pace in three years as soaring oil prices due to tensions with Iran weighed on global energy markets ahead of next week’s Federal Reserve policy meeting.
According to the U.S. Department of Labor’s Bureau of Labor Statistics (BLS), inflation rose 0.5% in May from the previous month, following a 0.6% rise in April, and was 4.2% higher than the same period last year.
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This increase was mainly due to higher energy prices, which increased by 3.9% in May, following a 3.8% increase in the previous month.
Americans are especially feeling the pressure at the gas pumps. Gasoline prices are up 7% from a month ago and more than 40% higher than this time last year.
“Prices continue to rise, and this month’s CPI print offers no relief to working families who are being forced to cut pennies and tighten belts,” Alex Jaquez, a former member of the White House National Economic Council under former President Joe Biden, said in a statement provided to Al Jazeera.
A gallon of gasoline costs $4.15, or $1.10 per liter, according to the American Automobile Association (AAA), which tracks gasoline prices in the United States. For comparison, when the US and Israel first attacked Iran on February 28, the price was $2.98 ($0.79 per liter).
Crude oil prices continue to rise. Brent crude oil futures rose $1.45, or 1.6%, to $92.90 a barrel in Wednesday morning trading. West Texas Intermediate (WTI) crude oil rose $1.80, or 2%, to $90 per barrel, after hitting an intraday high of $90.42.
Inflation also rose due to higher shelter costs, increasing by 0.3%. Food prices rose 0.3%, indicating a slowdown in growth. Prices rose 0.6% in April and 0.5% in March.
Inflation rose, but wages did not grow for the second consecutive month. The real wage growth rate fell by 0.1% in May.
“Americans are being squeezed financially by inflation,” said Heather Long, chief economist at Navy Federal Credit Union. “Right now, it’s not just bad vibes about the economy. There are real financial pressures, especially on middle-class and low-income households.”
Fed pressure
The rise in inflation comes as the possibility of an interest rate hike by the US Federal Reserve increases. The central bank will hold its first policy meeting under Kevin Warsh, who took over as board chairman last month after Jerome Powell’s term ended.
CME Federal Watch, which tracks possible rate hikes and rate cuts, expects rates to remain unchanged at next week’s meeting, but expects a hike rather than a cut in the coming months.
The tracker said there was a 96% chance that June rates would remain unchanged at 3.5% to 3.75%. However, there is a nearly 38% chance that rates will rise by a quarter point to 3.75% to 4% by the October meeting, and an 8% chance that rates will rise to 4% to 4.25%.
Goldman Sachs doesn’t expect any rate cuts to occur until mid-to-late 2027.
market reaction
Gold prices narrowed their decline on Wednesday but remained near two-month lows as tensions between the U.S. and Iran weighed on consumer prices and expectations for interest rate hikes rose.
“We are talking about the possibility of raising interest rates, but that would be to control inflation, which would push down the price of gold,” Alexander Tomic, associate dean of strategy, innovation and technology at Boston University, told Al Jazeera.
Spot gold fell 2.6% to $4,151.86 an ounce, its lowest since March 23.
The S&P 500 was down 1% in midday trading. The Dow Jones Industrial Average has fallen 1.3% since market opening, and the Nasdaq has fallen 1.4%.
