US Inflation Surges to Highest Level Since April 2023

Rising energy prices from the three-month-old war in Iran lifted inflation in May to its highest level in three years.

The U.S. annual inflation rate surged to 4.2 percent last month, from 3.8 percent in April, according to new Bureau of Labor Statistics data released on June 10.

This marks the highest 12-month inflation reading since April 2023.

Core inflation, which strips out the volatile energy and food categories, ticked up to 2.9 percent year-over-year from 2.8 percent in the previous month.

Both readings were in line with economists’ expectations.

On a month-over-month basis, May’s consumer price index rose 0.5 percent, while core edged up by a smaller-than-expected pace of 0.2 percent.

Energy accounted for 60 percent of the monthly increase, unsurprising as the war in Iran—now in its 14th week—continues to impact global oil markets.

The index for energy climbed 3.9 percent from April to May and is up almost 24 percent over the past 12 months. Gasoline jumped 7 percent last month, while fuel oil increased nearly 4 percent. Electricity costs also rose 0.6 percent.

Businesses and consumers dealing with rising energy prices in recent months could see relief.

A barrel of West Texas Intermediate—the U.S. benchmark for oil prices—has stabilized, trading around $90 on the New York Mercantile Exchange.

Gasoline prices have eased in the past month, with the national average falling almost 40 cents to $4.15 a gallon.

“Pump prices are cooling off as the price of crude oil remains below $100 per barrel. Drivers will take all the relief they can get as they embark on summer road trips,” the American Automobile Association said in a June 4 report.

“But uncertainty lingers over when the Strait of Hormuz will fully reopen and resume traffic. That unknown means oil prices will likely not decrease dramatically as summertime gasoline demand starts going up.”

Food prices were little changed in May, rising just 0.2 percent. Supermarket costs ticked up 0.1 percent, and food-away-from-home prices advanced 0.3 percent.

Protein-rich foods eased modestly as the category for meats, poultry, fish, and eggs fell 0.2 percent. This included a 1.6 percent drop for beef and veal, as well as a 0.1 percent dip for chicken.

But egg prices rose for the second consecutive month, surging 4 percent in May.

As President Donald Trump’s trade agenda continues to make its way through the U.S. marketplace, tariff-sensitive items posted mixed data.

The index for new vehicles declined by 0.3 percent, but apparel prices increased 0.3 percent. The information technology commodities category—smartphones, computers and peripherals, and software—slid 0.1 percent. Televisions declined 1.5 percent, appliances advanced 0.5 percent, and canned fruits and vegetables were flat.

Transportation services, a potential indicator for economists to determine whether inflationary pressures are widening throughout the economic landscape, fell 0.6 percent.

Inflation Watch

Concerns that inflation is broadening out and filtering through the U.S. economy have risen in recent weeks.

While much of the acceleration in price pressures emanates from higher oil and gasoline prices, various business surveys show that U.S. firms are contending with surging input costs.

The Institute for Supply Management’s prices index for manufacturing firms is hovering around its highest level in four years in May. The group’s price index for the services industry registered its highest reading since August 2022 last month.

“Districts noted that energy-related costs tied to the conflict in the Middle East were the primary driver of inflationary pressures, with spillovers into shipping, packaging, groceries, and fertilizer,” the Federal Reserve said in its latest Beige Book, a periodic report that summarizes economic conditions across the central bank’s 12 districts.

But inflation trends could be improving.

The June consumer price index is expected to show annual inflation stabilizing at around 4 percent. On a monthly basis, inflation could rise just 0.1 percent.

A popular private-sector metric suggests that inflation remains below the Fed’s 2 percent target.

The Truflation U.S. CPI Inflation Index—a measure that uses a treasure trove of market data—sits at 1.85 percent.

What This Means for the Fed

Still, the data could have implications for monetary policy.

Investors have been pricing in a more hawkish Federal Reserve, with traders expecting an interest rate hike at the December or January policy meeting, according to CME FedWatch data.

“The Fed’s next move may need to be a hike, and not a cut as many had expected coming into this year,” Chris Zaccarelli, CIO for Northlight Asset Management, said in an emailed note to The Epoch Times.

“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.”

U.S. stocks extended their losses and were in the red following the May CPI report, with the leading benchmark averages down about 0.5 percent.

The central bank will hold its next Federal Open Market Committee meeting on June 16 and 17—Chair Kevin Warsh’s first meeting as head of the Fed.

An increasing chorus of Fed officials thinks it would be appropriate to raise rates or, at the very least, leave the benchmark federal funds rate higher for longer.

“The Fed and its new Chair, Kevin Warsh, are in a difficult spot,” Josh Rubin, client portfolio manager at Thornburg Investment Management, said in a note emailed to The Epoch Times.

“Presumably, Trump nominated him on the assumption that Warsh could lower rates while maintaining credibility. It’s going to be tough to argue for rate cuts with a straight face in the current environment.”

Next week’s policy meeting will also feature updates to the Summary of Economic Projections, a quarterly outlook for policy and the wider economy.