Inflation rose in May as energy prices continued to bite American households, underscoring the ongoing pressure from higher fuel costs and the Iran war’s disruption of Middle Eastern oil supplies. The Bureau of Labor Statistics (BLS) reported that the consumer price index (CPI) increased by 0.5% from April to May, and was 4.2% higher than a year earlier. That annual pace is the strongest since April 2023, and aligns with economists’ expectations surveyed by LSEG.
Core CPI, which excludes volatile food and energy components to better gauge underlying price trends, rose by 0.2% for the month and 2.9% from a year ago, matching forecasters’ views. The monthly core gain came in just above the market’s expected 0.3% rise, while the annual figure held in line with predictions.
Energy prices climbed 3.9% in May, spurred by ongoing supply constraints tied to the Iran conflict. The energy component accounted for more than 60% of the total CPI increase for the month, illustrating how swings in fuel costs dominated the inflation picture. Gasoline rose by 7% month over month and was up about 40% from a year earlier, contributing significantly to the energy-driven increase. Electricity costs ticked up 0.6% in May and were roughly 5.9% higher than a year ago, while utility gas service rose 0.5% for the month and was up about 3% year over year.
Food prices increased modestly in May, with food at home climbing 0.2% from April and 3.1% higher than a year ago. The food-away-from-home category rose 0.3% for the month and 3.5% year over year. Meats, poultry and fish were softer month to month but still higher on an annual basis, with beef and veal up about 12.9% from last year. Egg prices rose 4% in May, though they remained down about 35% from a year earlier as the market normalized after an avian-flu outbreak.
Housing costs also drifted higher, with rents and tenant-related charges rising about 0.5% for the month and prices 6.9% higher year over year. Transportation services posted a small decline for the month, even as airline fares surged 2.7% in May and remained up about 26.7% versus a year ago.
In the labor market, observers noted that May still showed a robust payroll gain, with the economy adding 172,000 jobs in the month, beating consensus estimates. Analysts cited a mixed outlook for inflation and growth, noting that the inflation path remains elevated even as price pressures eased modestly from the prior month.
Market reaction to the CPI data was subdued: futures on the S&P 500 traded roughly 0.5% lower before the market opened, as investors weighed the persistence of higher energy costs against signs that inflation may be cooling from previous peaks.
Analysts cautioned that the recent readings keep the Federal Reserve in a wait-and-see stance. The CME FedWatch tool indicated a high probability that the federal funds rate will remain within its current target range of 3.5% to 3.75% at the next policy meeting, with rate hikes seen as more likely than cuts toward year-end if inflation remains sticky.
Investors and policymakers will be watching whether the labor market reaccelerates, potentially feeding through into services prices, or whether energy price dynamics abate enough to support a quicker easing in inflation later in the year, depending on oil prices and global demand.
