Inflation in the United States accelerated in May as higher energy costs pushed prices up for consumers, while core inflation remained relatively contained, according to the Bureau of Labor Statistics. The consumer price index rose 0.5% on a seasonally adjusted basis for the month, lifting the annual inflation rate to 4.2%, both in line with expectations. That marked the first time inflation has moved above 4% in three years and the highest reading since April 2023, up from 3.8% in April.
Excluding food and energy, core CPI increased 0.2% in May and 2.9% from a year earlier. The monthly core gain came in below economists’ forecast of 0.3% and slower than April’s 0.4% increase, suggesting underlying price pressures were less severe than the headline figures indicated.
The rise in inflation comes at a sensitive moment for financial markets and Federal Reserve policymakers, who are weighing their next interest rate decision. Markets broadly expect the Federal Open Market Committee to leave rates unchanged at its meeting on June 17, but investors will be watching closely for any sign that officials are becoming more concerned about the recent pickup in inflation.
Energy prices were the main driver of the monthly increase, rising 3.9% and pushing the 12-month gain to 23.5%. Food prices increased only 0.2%, while shelter costs — a key category for Fed decision-making — rose 0.3%, about half the pace of April’s increase. The moderation in shelter inflation may help ease some concerns about persistent price growth in housing-related costs.
Other components showed mixed trends. Transportation services fell 0.6%, suggesting that higher energy costs had not yet spread broadly through the service economy. New vehicle prices declined 0.3%, while used cars and trucks edged up 0.1%.
The report arrived as geopolitical tensions added another layer of uncertainty to the outlook. Ongoing hostilities with Iran have raised concerns that higher oil prices could affect other parts of the economy, and markets reacted nervously as President Donald Trump warned that Iran would “pay the price” for not accepting a peace deal. Stock market futures remained negative after the inflation report, though they recovered somewhat from earlier lows, while Treasury yields were little changed.
Overall, the data showed that May inflation was driven largely by energy, not a broad-based acceleration in prices. Still, the return of the headline rate above 4% underscores the challenge facing policymakers as they balance inflation risks against the need to support economic growth.
