US consumer inflation increased at its fastest pace in three years in May, boosted by surging prices for energy products amid the West Asia conflict, and giving more ammunition for the Federal Reserve to keep interest rates unchanged into 2027.

The third straight month of strong increases in the Consumer Price Index reported by the Labour Department on Wednesday underscored the mounting pressure on households, who are increasingly tapping their savings to fund spending.

Inflation outpaced wage growth for a second consecutive month, which could weigh on overall economic growth. The soaring cost of living is a political liability for President Donald Trump and his Republican Party, seeking to retain control of Congress in the midterm elections in November. Trump won the 2024 presidential election in large part because of his promise to lower inflation, but has seen his approval rating tumble as frustration mounts over his handling of the economy.

“Americans are getting squeezed financially by inflation,” said Heather Long, chief economist at Navy Federal Credit Union. “It’s not just bad vibes about the economy now; there are real financial pressures, especially on middle-class and lower-income households.”

The Consumer Price Index increased 4.2 percent in the 12 months through May, the largest gain since April 2023, the Labor Department’s Bureau of Labor Statistics said. The CPI advanced 3.8 percent year-on-year in April. Prices increased 0.5 percent over the month after climbing 0.6 percent in April. The rise in inflation was in line with economists’ expectations.

The US central bank tracks the Personal Consumption Expenditures Price Indexes for its 2 percent inflation target. All inflation measures are running well above the Fed’s target.

A 3.9 percent jump in the prices of energy goods accounted for more than 60% of the rise in the monthly CPI. Energy prices rose 3.8 percent in April. They vaulted 23.5 percent in the 12 months through May. Gasoline prices accelerated 7.0 percent over the month and were up 40.5 percent from a year ago. Prices at the pump have retreated in recent weeks as oil prices eased, raising cautious optimism among economists that May could be the peak in CPI inflation.

But the US and Iran engaged in tit-for-tat strikes on Tuesday, with President Donald Trump saying on Wednesday Tehran had taken too long to negotiate a deal and would ​now “have to pay the price.” Iran has said it would reassess diplomatic engagement with Washington.

Inflation last month was also lifted by higher rents. While food price growth slowed after accelerating in April, risks remained to the upside as the war, now in its fourth month, has raised the cost of fertilisers. Grocery prices edged up 0.1 percent, with increases in the prices of nonalcoholic beverages, cereals and bakery products as well as fruits and vegetables partially offset by decreases in the cost of meat and dairy products. Source : Reuters