Inflation rose to 4.2 percent in May on a year-over-year basis, driven by the war in the Middle east, a three-year high. The good news from the report indicated, outside or energy costs, prices weren’t rising as quickly.
The May data was up from 3.8 percent in April, and the highest level since April 2023. The month-over-month inflation cooled a bit from April, as energy prices started to ease up. Core inflation for May, which excluded energy, came in at 2.9 percent, in line with expectations, and slightly higher than the 2.8 percent a month earlier. Month-over-month CPI came in at 0.5 percent, just under the 0.6 percent seen last month. Monthly core prices were up 0.2 percent versus 0.4 percent in April.
The economy is under pressure from tariffs and the AI boom, but much of the inflationary pressure in May was from energy. With an agreement reached this weekend with Iran, oil prices are down. If the terms are held, inflation should ease in June.
The Fed meets this week for the first time under its new chairman Kevin Warsh. A rate hike was unthinkable at the beginning of the year, but now it is possible. It is unlikely any changes in monetary policy will happen this week, but it will be important to see what reforms are proposed for the rest of the year.