The consumer price index (CPI) rose 4.2 percent year-on-year, up from April’s 3.8 percent figure, the US Bureau of Labour Statistics said on Wednesday.
It was the highest reading since April 2023, according to official data, but in line with analyst expectations.
The US-Israeli war against Iran, launched in late February, has sent energy prices skyrocketing after Tehran retaliated by virtually closing the vital Strait of Hormuz, through which roughly a fifth of global oil and gas normally passes.
Trump has insisted that the price shock will be temporary and that a peace deal will be signed soon, but the soaring costs are a key issue for voters as they head to midterm elections in November.
Trump’s Republican Party will be aiming to maintain their control of both houses of Congress, but will face a stiff test as high prices batter US households.
Should Democratic lawmakers retake one or both houses, it will limit Trump’s ability to bulldoze policies through Congress as he has done throughout his second term.
May’s consumer inflation data showed energy prices had risen 23.5 percent over the same time last year, with gasoline rising by 40.5 percent.
Grocery prices also rose significantly for the second month in a row, up 2.7 percent over a year ago.
Other prices to increase over the month included medical care, personal care, airline fares and recreation.
Americans have been dealing with years of higher-than-expected prices, with inflation continuing to remain elevated long after the pandemic.
Core CPI inflation, which excludes volatile food and energy prices, came in at 2.9 percent in May, up from 2.8 percent the month before.
The US Federal Reserve has a long-term, two percent target for inflation, and the central bank’s key interest rate-setting committee will meet next week.
Markets expect them to keep rates steady at this meeting, but are now pricing in rate hikes for later in the year, spooking equity investors.
Before the war, markets had priced in interest rate cuts for later in the year, with expectations that inflation fuelled by Trump’s tariff policy would begin to fade.
The war, however, has complicated the outlook, with more Fed policymakers saying they were concerned about rising inflation, which the central bank would typically address by raising rates.
The Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) prices index, also hit a three-year high in its last reading.
“The Fed will be in no position to cut rates if this continues,” said Chris Zaccarelli, chief investment officer for Northlight Asset Management.
“The stock market has been climbing a wall of worry and has been able to rally on stronger earnings and stable interest rates, but a rising rate environment is another thing altogether.” (AFP)
