U.S. Inflation Hits 2-Year High at 4.2 Percent

(MENAFN) U.S. consumer prices surged to their highest level in two years last month, with the consumer price index (CPI) climbing 4.2 percent year on year in May — the steepest reading since May 2023 — as soaring energy costs drove the bulk of the increase, data from the U.S. Bureau of Labor Statistics showed Wednesday.

Energy prices bore the brunt of the acceleration, with the energy index jumping 3.9 percent month on month in May alone, accounting for more than 60 percent of the headline inflation figure. Gasoline prices surged 40.5 percent year on year, while fuel oil costs skyrocketed 58.9 percent over the same period.

The national average gasoline price peaked at $4.555 per gallon on May 20 — a 50 percent increase since the Iran conflict erupted in February — before easing to $4.151 per gallon by Wednesday, according to the American Automobile Association.

Core CPI, which strips out volatile food and energy components, rose 2.9 percent year on year in May. On a monthly basis, headline CPI increased 0.5 percent, moderating slightly from April's 0.6 percent gain, while core CPI edged up just 0.2 percent — below both April's 0.4 percent reading and the market consensus forecast of 0.3 percent.

The report lands at a pivotal moment for financial markets and Federal Reserve policymakers. The rate-setting Federal Open Market Committee (FOMC) is widely expected to keep interest rates on hold at its June 17 meeting, with policymakers signaling that the inflation spike driven by the Iran conflict will likely push back any prospect of rate reductions.

"The data were largely in line with consensus and core inflation came in a tick below expectations on a month-on-month basis at 0.2 percent," said Shawn Snyder, economic strategist at Potomac Fund Management. "That said, inflation has been above the Fed's target for over five years now and is trending in the wrong direction. It is hard to envision the president's desired rate cuts against this backdrop."

"Despite inflation moving down in May, this report is likely to leave the Fed on hold in the near term as inflation remains elevated," said Frank Nickel, Proprietary Strategies at Orion AAC.

Markets reacted swiftly to the confluence of inflation data and geopolitical tension. Oil prices climbed while U.S. equities traded lower in Wednesday's morning session after President Donald Trump posted on Truth Social that Iran has "taken too long to negotiate a deal" and will "have to pay the price."

MENAFN11062026000045017169ID1111244923