The Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures price index, rose 4.1% in May from a year earlier, the highest in three years, the Commerce Department reported Thursday. Core PCE, which strips out volatile food and energy costs, climbed 3.4%, the fastest since October 2023.
The surge was largely driven by the US-Israel war on Iran, which has sent global energy prices skyrocketing and disrupted supply chains through the Strait of Hormuz.
President Trump dismissed the rise as temporary, but economists point out it will take months for fuel prices to normalize even if peace negotiations succeed. US gasoline prices remain about 31% above pre-war levels, though crude oil futures have eased recently.
On the positive side, first-quarter GDP was revised up sharply to 2.1%, bolstered by information services and AI-related growth.
The Federal Reserve held interest rates steady for a fourth straight meeting, with half of policymakers signaling possible rate hikes next year. The inflation data adds political pressure ahead of November’s midterms, with Senator Elizabeth Warren criticizing Trump’s failure to lower costs.