People pump gas at a gas station in Washington DC on 30 May 2026. Photograph: Bonnie Cash/UPI/ShutterstockPeople pump gas at a gas station in Washington DC on 30 May 2026. Photograph: Bonnie Cash/UPI/ShutterstockUS inflation jumped to 4.2% in May, the third consecutive increase since start of Iran warBefore the conflict began, inflation was at 2.4%, but the closure of the strait of Hormuz has affected energy prices
US inflation jumped to an annual rate of 4.2% in May, the third consecutive monthly increase since the start of the Iran war and a three-year high, as Americans continue to face steep oil prices.
Prices have increased sharply over the past several months, rising at an annual rate of 3.3% in March before going up to 3.8% in April. In February, before the conflict began, inflation was at 2.4%.
Energy prices were once again responsible for the increase in the consumer price index, according to new data from the Bureau of Labor Statistics, accounting for 60% of the overall monthly increases. Though prices at the pump are slightly lower than where they were a month ago, they remain about $1 per gallon more than a year ago. Other essential everyday expenses, such as food, energy services and clothing, also increased. Stripping out volatile energy and food prices, core CPI increased 2.9%.
Trump claims US fuel prices ‘not very high’ as costs surge amid Iran warRead moreSince the beginning of the US-Israel war with Iran, inflation has hit its highest levels since 2023, though they still remain well below the peaks recorded in 2022, when inflation hit 9%.
Higher prices have dampened Americans’ expectations of their financial outlook. According to a survey released on Monday from the Federal Reserve Bank of New York, households have become more pessimistic about inflation, the labor market, finding a job and the potential for layoffs. Consumer sentiment has also plummeted to a historic low, according to data from the University of Michigan, after falling for three consecutive months.
The new inflation data puts pressure on officials with the US Federal Reserve, who are meeting for the first time next week under the central bank’s new chair, Kevin Warsh. The Fed has voted to maintain interest rates since the end of last year.
Warsh said he believes the rates, which stand at 3.5% to 3.75%, should be lowered, aligning himself with Donald Trump, who has spent the last year trying to coerce the central bank into lowering rates.
Even though prices are rising, the president is unlikely to be undeterred from calling for rate cuts. On Tuesday, Trump told reporters that he didn’t think US fuel prices were “very high, relatively speaking.”
The Fed typically decreases rates to address high unemployment, at the risk of raising prices. The US job market has remained strong, with employers adding a surprising 172,000 jobs in May while the country’s unemployment rate held steady at 4.3%.
Goldman Sachs said on Friday that it no longer believed that the Fed would cut rates this year, instead predicting that the central bank would keep rates unchanged throughout 2026 and delay any cuts until next year.
JP Morgan Global Research forecast that rate hikes across global central banks were on the horizon and predicted that the Fed would increase rates by 2027.
“Two recent developments are upending the debate about inflation inertia and the monetary policy path,” Bruce Kasman, chief global economist at JPMorgan Chase, wrote in the April report. “The energy price spike is now raising inflation and generating a sharp squeeze on household purchasing power that could intensify if the Middle East conflict keeps the strait of Hormuz closed.”
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