US inflation tops 4% for first time in three years, keeping Fed hike in play
U.S. inflation increased further in May, breaking above 4.0% for the first time in three years as the Middle East conflict boosted energy prices, and
U.S. inflation increased further in May, breaking above 4.0% for the first time in three years as the Middle East conflict boosted energy prices, and keeping an interest rate increase from the Federal Reserve this year on the table. But with oil prices falling to pre-war levels on Thursday after the United States and Iran signed a preliminary peace deal, inflation likely peaked last month or is close to doing so. While easing oil prices could dampen goods inflation, that could be offset by more expensive services. Economists expected overall inflation to remain elevated for a while.Financial markets are anticipating a rate hike from the U.S. central bank in September."PCE price inflation remains too high and will keep the Fed on hold and mulling a potential rate hike at upcoming meetings," said Scott Anderson, chief U.S. economist at BMO Capital Markets. "Services inflation was even higher than goods inflation last month and will not be easily tamed by falling energy prices. The fight between the hawks and the doves is sure to remain intense."The personal consumption expenditures price index surged 4.1% in the 12 months through May, the largest increase and first reading above 4.0% since April 2023, the Commerce Department's Bureau of Economic Analysis said on Thursday. PCE inflation rose by an unrevised 3.8% in April.Economists polled by Reuters had forecast PCE inflation advancing 4.1%.
The PCE price index climbed 0.4% over the month after rising by the same margin in April. The U.S.-led war against Iran pushed up oil prices, driving gasoline prices higher, as Tehran took control of the Strait of Hormuz. On Thursday, Washington said shipments through the strait were approaching levels seen before the U.S. and Israel launched strikes on Iran on February 28, weighing on oil prices.Consumers were before the conflict already struggling with higher prices stemming from Trump's sweeping import tariffs. The higher cost of living is a political liability for Trump and his Republican Party, seeking to retain control of Congress in the midterm elections in November, amid mounting frustration over his stewardship of the economy.Also Read | Micron surges 19%, overtakes Meta in market value amid relentless AI infrastructure demandTrump won the 2024 presidential election in part because of his promise to lower inflation.Excluding the volatile food and energy components, the PCE price index increased 3.4% year-on-year in May after rising 3.3% in April. The so-called core PCE inflation advanced 0.3% on a monthly basis after gaining 0.3% in April.The U.S. central bank tracks the PCE inflation measures for its 2% target. The Fed last week kept its benchmark overnight interest rate in the 3.50%-3.75% range, but updated quarterly projections showed policymakers expected to raise borrowing costs this year amid growing concerns about inflation.
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