US inflation climbs to 4.2% in May, highest level since 2023

US inflation accelerated in May, with consumer prices rising 4.2% year-on-year, marking the highest annual inflation rate in more than three years as escalating energy costs added to price pressures across the economy, according to data released by the US Bureau of Labor Statistics on Wednesday.The Consumer Price Index (CPI), a broad measure of the cost of goods and services, increased 0.5% on a seasonally adjusted basis during the month, taking the annual inflation rate to 4.2%. Both figures were in line with economists’ expectations, according to a Dow Jones survey.

The latest reading represents the first time inflation has crossed the 4% mark since April 2023 and follows a 3.8% increase recorded in April. Analysts attributed much of the acceleration to higher energy prices, which have surged amid ongoing hostilities involving Iran and growing concerns over disruptions to global oil supplies.
However, underlying inflationary pressures remained relatively contained. Core CPI, which excludes the more volatile food and energy categories, rose 0.2% from April and 2.9% from a year earlier, according to Bureau of Labor Statistics data. While the annual core inflation rate matched forecasts, the monthly increase came in below expectations of 0.3% and eased from April’s 0.4% gain.The inflation report arrives at a critical juncture for financial markets and policymakers as the US Federal Reserve weighs its next interest-rate decision.

Investors widely expect the Federal Open Market Committee (FOMC) to keep rates unchanged at its June 17 meeting, though market participants will closely monitor policymakers’ assessment of the recent inflation uptick and the potential impact of higher energy costs on the broader economy.

Concerns about inflation have intensified as tensions in West Asia continue to drive oil prices higher.

Markets remained on edge after US President Donald Trump warned that Iran would “pay the price” for rejecting a peace agreement, raising fears that elevated energy costs could spill over into other sectors and complicate the Federal Reserve’s path toward easing monetary policy.