Inflation rose four-tenths of a percentage point to 4.2% for the year ending in May, the Bureau of Labor Statistics reported in an update to the consumer price index Wednesday, as high energy prices from the Iran war pushed up the headline number.
The inflation reading for May was the highest since April 2023.
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In just the month of May, prices rose 0.5%.
“Most of this morning’s data came in line with expectations, but we are seeing a strong rise in core inflation,” said Chris Zaccarelli, chief investment officer for Northlight Asset Management.
Fast-rising prices are a major political problem for President Donald Trump, who won office in large part because high inflation doomed his predecessor, President Joe Biden. The cost of living has dragged down consumer sentiment to record lows and pushed Trump’s approval ratings deeply underwater, darkening the prospects for the Republican Party in the midterm elections.
The recent increase has been driven in large part by spiking energy prices, which have soared as the conflict with Iran disrupted the global oil supply. Energy prices are up 23.5% on the year, led by soaring fuel oil and gasoline prices.
Notably, core inflation, a measure that strips out volatile food and energy prices, rose one-tenth of a percentage point to 2.9% for the year ending in May.
Families are feeling the strain of higher prices for goods and services they use routinely. For instance, restaurant prices have gone up 3.5% in just the past year. The price of beef and veal has risen nearly 13% over the past year. Fruit and vegetable prices have increased by 6.1%, on average.
Clothing prices have risen 4.8%, gas prices have spiked more than 40%, and electricity prices have jumped 5.9% in the past year.
On the other hand, families looking to buy cars are seeing some relief. Used car prices have fallen 2% from April 2025, and new car prices have essentially remained flat and not risen much over the past year.
The increase in inflation in the late spring makes it less likely that the Federal Reserve will move to ease monetary policy in the months ahead. The central bank held interest rates steady at its last three meetings.
The Fed’s next meeting is set for later this month and will be the first meeting with Kevin Warsh as chairman. Warsh was nominated by Trump to replace Fed Chairman Jerome Powell and recently confirmed by the Senate.
“It’s very possible that things wrap up in the Middle East and shipping gets back to normal over the course of the rest of the year, in which case we can see inflation come down over time and the Fed could hold off raising rates, but if things stay as they are currently, then all bets are off,” Zaccarelli said.
Given the higher inflation prints in recent months, investors think the odds of a rate cut this year are very low. In fact, a rate increase appears more likely, given the hotter inflation and underlying strength in the labor market.
The stronger job market means that Warsh and the Fed board can focus more on curbing inflation than on worrying about unemployment rising.
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The economy added a strong 172,000 payroll jobs in May, the Bureau of Labor Statistics reported last week. The unemployment rate remained at a relatively low 4.3%.
Other economic indicators also suggest that the labor market is strong. For example, job openings increased from 6.9 million in March to 7.6 million in April — the highest level since May 2024.
