US consumer prices rose 4.2% in the twelve months through May, up from 3.8% in April — the first reading above 4% since May 2023, the Bureau of Labor Statistics reported. Energy accounted for more than 60% of the monthly increase: gasoline jumped 40.5% year over year and is up roughly 50% since January, as the war with Iran and the disruption of oil shipments through the Strait of Hormuz pushed fuel costs sharply higher.
Food prices also climbed — tomatoes rose 32%, lettuce about 25% and coffee 17.5%, with groceries overall up 2.7%. Airfares increased, while new vehicles, furniture and prescription drugs got cheaper, suggesting tariff-related price passthrough is fading. Core inflation, which strips out food and energy, rose a more moderate 2.9%.
The report has upended expectations for interest-rate cuts: markets now price a 96% chance the Federal Reserve holds rates steady at its June 17 meeting, and some analysts say a hike is back on the table. "The Fed will be in no position to cut rates if this continues," one investment chief warned.