Energy-driven inflation climbs to highest level in three years

Inflation climbed to its highest level in three years in May, as rising energy prices pushed up the cost of living for millions of Americans.

The Consumer Price Index (CPI), a broad measure of goods and services prices, was up 4.2% from a year earlier, according to the Bureau of Labor Statistics. However, prices rose more slowly in May than they did in April.

Energy leads the surge
A 3.9% monthly jump in energy prices drove most of the increase, with energy costs now 23.5% higher than a year ago. The category accounted for more than 60% of the overall monthly rise in consumer prices.

Gasoline was a major contributor. Prices climbed 7% in May and were more than 40% higher than a year earlier after tensions around the Strait of Hormuz disrupted global oil supplies.

Average US gasoline prices reached $4.56 a gallon in late May, reducing consumers’ purchasing power and outpacing wage growth for the second straight month.

Although gasoline prices eased slightly in June, they remain well above last year’s levels.

Outside energy, food prices edged up 0.2%, while shelter costs rose 0.3% and were 3.4% higher than a year ago. 

Meanwhile, new vehicle prices and transportation services both declined, indicating that inflation has not yet spread broadly across the economy.

Core inflation, which excludes volatile food and energy costs, increased 0.2% in May, down from 0.4% in April and below the 0.3% forecast by economists.

For the 12 months through May, the Consumer Price Index rose 2.9%, broadly in line with forecasts.

Fed watches inflation risks
The latest data is expected to keep the Federal Reserve cautious, with investors widely anticipating no change in interest rates at its upcoming policy meeting, with Chair Kevin Warsh at the helm.

Meanwhile, inflation has outpaced wage growth for the second straight month, reducing consumers’ purchasing power and raising concerns about household finances.