US consumer inflation breaks above four per cent
U.S. consumer inflation paced its fastest pace in three years in May as energy prices rose amid conflict in the Middle East, giving the Fed more ammunition to keep interest rates unchanged through 2027.
A third consecutive month of strong increases in the Consumer Price Index, released by the Labor Department on Wednesday, underlined the growing pressure on households who are increasingly using their savings to finance spending.
Inflation eroded wages for the second consecutive month in May, which could weigh on overall economic growth.
The rising cost of living poses a political liability for US President Donald Trump and his Republican Party, who want to keep control of Congress in the midterm elections in November.
Trump won the 2024 presidential election largely because of his promise to reduce inflation, but has seen his approval rating fall as disillusionment with his handling of the economy grows.
“Americans are being squeezed financially by inflation,” said Heather Long, chief economist at Navy Federal Credit Union.
“It’s not just bad feelings about the economy; there are real financial pressures, especially on middle-class and lower-income households.”
The Consumer Price Index rose 4.2 percent in the 12 months through May, the largest increase since April 2023, the Labor Department’s Bureau of Labor Statistics said.
CPI increased by 3.8 percent on an annual basis in April and increased by 3.3 percent in March.
Prices increased by 0.5 percent monthly, following a 0.6 percent increase in April.
The increase in inflation was in line with economists’ expectations.
The US central bank is tracking Personal Consumption Expenditure Price Indices for a 2.0 percent inflation target.
All inflation measures are running well above the Fed’s target.
Real average hourly earnings fell 0.7 percent in the 12 months to May, after falling 0.3 percent in April.
The 3.9 percent increase in energy goods prices accounted for more than 60 percent of the increase in monthly CPI.
Energy prices increased by 3.8 percent in April.
They increased by 23.5 percent in the 12 months until May.
Oil prices accelerated 7.0 percent during the month and are up 40.5 percent from a year ago.
Pump prices have fallen in recent weeks due to the decline in oil prices, increasing cautious optimism among economists that May could mark a peak in CPI inflation.
Inflation also rose last month due to high rents.
While the increase in food prices has slowed down after accelerating in April, risks continue to be on the upside as the war, which has entered its fourth month, has increased fertilizer prices.
Grocery prices rose 0.1 percent, while increases in the prices of soft drinks, cereals and baked goods, as well as fruits and vegetables, were partially offset by declines in the cost of meat and dairy products.
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