U.S. inflation reached its highest level in more than three years in May, driven largely by the energy shock from the ongoing war with Iran. The Consumer Price Index rose at an annual rate of 4.2%, up from 3.8% in April and the highest reading since April 2023, according to CBS News.
The Labor Department's May report showed that energy prices accounted for more than 60% of the monthly CPI increase. Gasoline prices jumped 40.5% from a year earlier. The closure of the Strait of Hormuz has disrupted global supply chains, pushing up prices on goods ranging from gasoline to airfares.
Inflation has accelerated sharply this year, climbing from an annual rate of 2.4% in January to the current three-year high. Economists polled by financial data firm FactSet had predicted the 4.2% figure.
Food prices also rose. Groceries were up 2.7% from a year earlier. Tomato prices surged 32%, lettuce jumped almost 25%, and coffee prices rose 17.5% from a year earlier.
Core inflation, which strips out food and energy, rose at an annual rate of 2.9%, up slightly from 2.8% in April. Some economists saw that as a relative sign of stability.
Elizabeth Renter, senior economist at NerdWallet, noted in a Wednesday email that household budgets are under pressure because rising inflation is outpacing wage growth. Three-quarters of Americans said their incomes are not keeping up with inflation, according to a recent CBS News poll. "Consumers are paying more for essentials, and they can feel powerless to mitigate this pain," Renter said.
Not all categories moved higher. New vehicles, household furniture and prescription drugs all posted price declines last month. EY-Parthenon chief economist Gregory Daco said in an email that those drops could be "a sign that the bulk of tariff-related passthrough appears to be behind us."
Nancy Vanden Houten, lead U.S. economist at Oxford Economics, suggested in a research note that May could represent a 2026 peak for inflation, which could ease later in the year, partly because gas prices have already come down in June. That decline, however, is not captured in the May data.
