Inflation hits 4.2%, highest since 2023 as energy costs squeeze consumers

WASHINGTON, DC: US inflation accelerated to 4.2% in May, marking its highest level since early 2023 as higher energy costs continued to ripple through the economy.

Data released by the Bureau of Labor Statistics (BLS) showed the annual inflation rate rose from 3.7% in April, with energy prices accounting for more than 60% of the monthly increase.

"The index for energy rose 3.9 percent in May," the BLS said, noting that energy remained the primary driver behind the latest inflation surge.

The increase comes months after military action involving the United States, Israel and Iran disrupted energy markets, sending oil prices sharply higher and raising concerns about broader economic fallout.

Rising prices outpace paychecks

Economists warned that rising inflation is becoming increasingly painful for consumers because wage growth is no longer keeping pace with price increases.

Average hourly earnings were growing at an annual rate of 3.4% in the latest jobs report, meaning inflation has outstripped wage growth for a second consecutive month.

The BLS also reported that real average weekly earnings fell 0.2% in May and were down 0.7% compared with a year earlier, the largest annual decline since February 2023.

Core inflation remains relatively stable

Despite the headline jump, underlying inflation pressures remained more moderate.

Core inflation, which excludes volatile food and energy prices, rose 2.9% from a year earlier and increased just 0.2% on a monthly basis.

Several categories, including medical care, airline fares, recreation and communication services, recorded price increases in May. However, some food items and prescription drugs became cheaper.

Prices for dairy products fell 0.6%, cheese dropped 2.9%, and prescription drug costs declined 0.9% during the month.

Tariffs could add fresh inflation risks

Economists are also watching the potential impact of President Donald Trump's proposed tariffs on imports from dozens of countries.

The proposed duties could affect goods ranging from apparel to household appliances if implemented, potentially adding another source of inflationary pressure later this year.

With energy costs remaining elevated and new trade measures under consideration, analysts warn that inflation could stay above the Federal Reserve's comfort zone in the months ahead, prolonging financial strain for American households.