The BLS reported that energy prices jumped 3.9% during the month and were up 23.5% from a year ago.
Energy accounted for roughly 60% of the monthly increase in consumer prices, underscoring the growing economic impact of oil’s rally following the outbreak of hostilities involving Iran.
The inflation report arrives as crude prices continue trading near $90 per barrel, with fears that consumer prices could remain high through the second half of 2026.
Core CPI, which excludes food and energy, rose 0.2% during the month and 2.9% annually.
The Boston Fed concluded that modern oil shocks increasingly show up in consumer prices rather than employment losses.
U.S. inflation climbed above 4% for the first time in three years in May as rising energy costs tied to the Iran war pushed consumer costs sharply higher, with the Consumer Price Index rising 0.5% from April and 4.2% from a year earlier, according to data released Wednesday by the Bureau of Labor Statistics.
The annual rate matched economists’ expectations but marked the highest inflation reading since April 2023 and an acceleration from the 3.8% rate recorded in April.
Energy was by far the largest contributor to the increase. The BLS reported that energy prices jumped 3.9% during the month and were up 23.5% from a year ago. Energy accounted for roughly 60% of the monthly increase in consumer prices, underscoring the growing economic impact of oil’s rally following the outbreak of hostilities involving Iran.
The inflation report arrives as crude prices continue trading near $90 per barrel, with fears that consumer prices could remain high through the second half of 2026.
At the same time, the underlying inflation picture remained more subdued. Core CPI, which excludes food and energy, rose 0.2% during the month and 2.9% annually. Food prices increased 0.2%, while shelter costs rose 0.3%. Core commodities prices actually declined 0.1%, suggesting that inflation pressures outside of energy are being contained.
Still, the data presents a challenge for the Federal Reserve ahead of next week’s meeting. While markets continue to expect interest rates to remain unchanged, inflation has now moved decisively higher after several months of energy-driven price increases.
Recent research from the Federal Reserve Bank of Boston suggests the current oil shock may add roughly 1.5 percentage points to inflation over the coming year. Unlike the oil crises of the 1970s, however, economists say the U.S. is less vulnerable to the recessionary effects of higher crude prices due to its status as a major oil producer and exporter.
The Boston Fed concluded that modern oil shocks increasingly show up in consumer prices rather than employment losses. The May inflation report suggests that the process is already underway.
By Charles Kennedy for Oilprice.com
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