Consumer prices rose 4.2 percent from a year earlier in May, the highest annual reading since April 2023, according to the Bureau of Labor Statistics. The Consumer Price Index increased 0.5 percent during the month, matching what economists had forecast. One number explains most of it: Energy accounted for more than 60 percent of the overall increase.
The Iran war's disruption of Middle Eastern oil supplies is driving that. The energy index rose 3.9 percent in May and was up 23.5 percent from a year ago. Gasoline alone rose 7 percent during the month and was up 40.5 percent from a year earlier. Fuel oil surged 58.9 percent over the same period. Electricity prices increased 0.6 percent for the month and 5.9 percent over the past year. Utility gas service fell 0.5 percent in May but remains up 3 percent from a year ago. The energy pain is broad-based, hitting consumers at the pump, at home, and everywhere in between.
James McCann, senior economist at Edward Jones, pushed back on the gloomier reads of the report:
"American households continue to feel the brunt of surging energy costs, adding to the deluge of inflation they have weathered since the pandemic. The good news is that the economy looks resilient to this price shock so far. Many consumers have benefited from tax refunds this year, hiring has picked up from near stagnant rates in 2025 and businesses are generating robust profit growth."
Outside of energy, the report told a different story. Core prices, which strip out food and energy, rose 0.2 percent in May and 2.9 percent from a year ago, coming in below the 0.3 percent monthly forecast. Core commodities prices declined 0.1 percent during the month. Chris Rupkey, chief economist at Fwdbonds, agreed:
"The inflation risks for core consumer goods are in retreat for now."
Food prices rose 0.2 percent in May and were up 3.1 percent year-over-year, with groceries up 0.1 percent and restaurant prices up 0.3 percent.
Markets were already moving before the report was released. President Trump posted on Truth Social that Iran had taken too long to negotiate a peace deal and would "pay the price," sending oil prices higher and pushing stock futures further into negative territory.
Read More: Trump Moves to Cut Gas Tax As War-Driven Inflation Hits American Wallets
Consumer Prices Reportedly Rose in March Over Soaring Energy Costs, but It's Mostly Good News
The Federal Reserve is watching closely. Markets are now pricing in rates on hold through most of the year, with traders eyeing a possible hike by December. New Fed Chair Kevin Warsh has signaled he believes productivity gains from artificial intelligence could exert disinflationary pressure over time, but that is a long-run argument. In the short run, the central bank has little room to move while energy costs are this volatile.
The 4.2 percent number will dominate the coverage. But this is a war-inflation report, not a domestic-economy inflation report. Every category that reflects homegrown price pressure came in at or below expectations. The pain at the pump is real, and it traces back to a single source: the conflict in Iran.
Editor’s Note: Thanks to President Trump’s leadership and bold policies, America’s economy is back on track.
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