U.S. inflation climbed above 4% for the first time in more than three years in May, driven largely by a sharp increase in gasoline prices linked to the ongoing conflict between the United States and Iran.

The Labor Department reported Wednesday that consumer prices were 4.2% higher in May than a year earlier, marking the highest annual inflation rate since April 2023. Prices rose 0.5% from April to May.

Energy costs accounted for more than 60% of the monthly increase. Gasoline prices have risen by more than $1 per gallon since the conflict disrupted shipping through the Strait of Hormuz, a vital route for global oil supplies.

The inflation surge has outpaced wage growth. Average earnings increased 3.4% over the past year, meaning many workers have seen their purchasing power decline.

Higher fuel costs also affected other parts of the economy. Airfares were up about 27% from a year ago as airlines passed along increased operating expenses to travelers.

Food prices remained relatively stable. Grocery prices rose just 0.1% in May, helping to offset some of the pressure from energy costs.

Excluding the often-volatile food and energy categories, core inflation measured 2.9% over the past 12 months, slightly higher than the previous month’s reading.

The report is likely to reinforce expectations that the Federal Reserve will keep interest rates unchanged for the near future. Policymakers have been monitoring inflation closely, and a stable labor market has reduced pressure to lower borrowing costs. Employers added 172,000 jobs in May.

Gasoline prices have eased somewhat in recent days amid hopes for a negotiated settlement between the United States and Iran. However, according to AAA, the national average price for regular gasoline remains about $4.15 per gallon, roughly $1.17 higher than before the conflict began.

Source: Reuters