Topline
Inflation rose to its highest annual rate in three years in May, as surging oil costs once again fueled broader price increases amid a persistent conflict in the Middle East, according to federal data released Wednesday.
Inflation worries remain as employment data has surpassed expectations.
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Key Facts
Consumer prices increased 4.2% from May 2025 and 0.5% between April and May, the Bureau of Labor Statistics reported, matching consensus economist estimates, according to FactSet.
That’s the first time inflation crossed the 4% annual rate since May 2023 (4%), and it’s the highest rate since April 2023 (4.9%).
Core CPI, an inflation reading that excludes energy and food price increases, rose by 2.9% annually, aligning with analyst estimates even as its monthly gain of 0.2% was below estimates of 0.3%.
The energy index, which tracks shifts across gas, fuel oil and other energy commodities, rose 3.9% in May, accounting for more than 60% of all price increases as gas prices surged 7% month-to-month and nearly 59% annually, the most of any item tracked by the Bureau of Labor Statistics.
what to watch for
The Federal Reserve’s policymaking panel meets next week for its first vote on interest rates under new chair Kevin Warsh. Central bank officials appeared poised to hold interest rates even before Warsh stepped in, according to minutes from the Federal Open Market Committee’s April meeting, during which a majority of officials stated an “increased risk” that inflation will take longer to return below the Fed’s 2% goal than previously expected. Better-than-expected employment data for May—the U.S. added 172,000 nonfarm jobs, beating estimates of 105,000—all but guaranteed the Federal Reserve will hike interest rates this year: Markets have priced 66.1% odds of a hike at the Fed’s December meeting, according to CME Group’s FedWatch tool.
key background
Soaring oil and gas prices have pressured consumer prices since the U.S. first struck Iran in late February. Americans’ views on the economy dropped to an all-time low in May, according to the University of Michigan’s consumer sentiment survey. Joanne Hsu, the survey’s director, said consumers continued to feel “buffeted by cost pressures, led by soaring prices at the pump.” Positive developments in the Middle East are unlikely to boost sentiment anytime soon unless oil supply disruptions are fully resolved and energy prices fall, Hsu said. President Donald Trump on Wednesday said Iran was “all talk and no action” when negotiating a peace deal, claiming the country would “pay the price.” The renewed threat came after the U.S. launched retaliatory strikes against Iran after it allegedly shot down a U.S. Apache helicopter near the Strait of Hormuz.