Inflation Tops 4 Percent

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This article was authored by: Alicia Wallace

Annual inflation rose to a three-year-high of 4.2% in May. Prices rose 0.5% on a monthly basis. The higher cost of energy accounted for 60% of the monthly increase. Overall food prices and grocery prices didn’t rise as fast as they did in April, increasing 0.2% and 0.1%, respectively, versus 0.5% and 0.7% last month. 4.2% is still too hot for comfort, but the more important news was that the increase was concentrated mainly in energy, especially gasoline, rather than spreading widely across the economy. The underlying inflation trends are running more muted. The closely watched “core” CPI gauge that strips out food and energy rose a slower-than-expected 0.2% from April, bringing the annual rate to 2.9%. May’s release is the first inflation report since Kevin Warsh was sworn in as the chair of the Federal Reserve, succeeding Jerome Powell. With inflation moving in the wrong direction and the labor market showing signs of resilience, economists expect the US central bank to keep rates unchanged — or even consider raising them. Overall prices aren’t rising as sharply as they did in March and April; however, the past three months have seen the fastest pickup in price hikes since the April through June period of 2022, when inflation was climbing to a 41-year high. That’s an unsettling throwback; however, economists say that this bout of inflation isn’t expected to be as bad as the last one – recent projections had CPI topping out in the range of 4.5% to 5% this year, as opposed to 9.1% in 2022. Prices have yet to reflect the full spillover effects from the US and Israel’s war with Iran, she said. The conflict has resulted in the Strait of Hormuz being effectively shuttered, choking off the flow of oil and other critical materials such as metals and fertilizer. Additionally, the artificial intelligence boom is pushing prices higher for electricity as well as certain electronic components and software. The fast-rising prices are outstripping workers’ paychecks, and that gap is widening: Annual real (inflation-adjusted) wages declined for the second month in a row, with the loss widening to 0.7% from 0.3% in April.