US inflation accelerates, core gauge softens
US inflation accelerated again in May, driven largely by rising energy prices tied to geopolitical tensions, though a closely watched core gauge came in softer than economists had expected. The consumer price index rose 4.2% from a year earlier, the highest since early 2023, according to Bureau of Labor Statistics data released Wednesday.
The core CPI, which strips out volatile food and energy costs, increased 0.2% from April and 2.9% from a year ago. That was below forecast and offered a slightly less alarming picture beneath the headline numbers.
Energy spike masked quieter price moves elsewhere
Gasoline prices surged 7% in May, accounting for much of the overall CPI jump. But outside petrol, the data showed many household essentials rose at a more muted pace. Grocery prices inched up just 0.1%, and energy services — utilities like electricity and natural gas — also advanced more slowly.
Transportation services, health insurance, and new vehicle prices actually fell. Those declines offer cold comfort for consumers already squeezed by higher costs that are eating into paychecks. But they do suggest that price pressures remain uneven rather than broad-based.
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Real wages drop sharply
A separate report Wednesday combined the price data with recent wage data and found that real average hourly earnings fell 0.7% from a year earlier.
That’s the biggest drop in more than three years.
The combination of higher prices and weaker pay gains is putting more stress on household budgets at a time when consumer sentiment is already at record lows. Those pressures are likely to become a central issue in November’s elections.
Former President Donald Trump’s approval ratings have slumped as Americans have soured on his handling of the economy, which he had previously counted as an area of strength. The political stakes are obvious, even if the economic path ahead remains uncertain.
What comes next — and why it matters
Even if the geopolitical tensions are resolved soon, economists expect more price increases on the horizon.
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Disruptions to fertilizer markets could eventually push up grocery bills.
Rising transportation costs threaten to boost prices for all kinds of consumer goods.
That could prompt Federal Reserve officials to consider an interest-rate increase later this year. The central bank had been on hold after cutting rates last year, but the recent price data may shift the calculus.
S&P 500 futures pared losses after the CPI release, suggesting markets had braced for worse.
But the details of the release — including the softer core reading — gave traders some breathing room.
One slightly odd detail: the BLS data showed that energy services, a category covering electricity and natural gas, advanced slower than in prior months. That doesn’t entirely square with the narrative of broad energy-driven price rises, but it may reflect lagging effects or regional differences.
Either way, the headline number still grabs attention: 4.2% is not something the Fed can ignore.
For now, consumers are left to cope with an economy where the cost of filling up the tank is rising fast but some other prices — like insurance and cars — are moving in the opposite direction. It’s a messy picture, and not one that lends itself to easy political sloganeering.
