US households, businesses stung by higher energy prices that have pushed inflation above 4%

The US Labor Department reported Wednesday that consumer prices climbed 4.2% in May compared to a year earlier, marking the highest inflation rate in three years and exceeding the Federal Reserve’s 2% target. The increase, up from 3.8% in April, was primarily fueled by rising energy costs, which accounted for over 60% of the monthly rise. Gas prices, in particular, drove the spike, though they have since eased slightly while remaining elevated. Inflation has outpaced wage growth for months, squeezing household budgets and prompting consumers to rely on savings or fall behind on credit card payments. Retailers noted shifts in spending behavior, including smaller gas purchases during visits. The Federal Reserve, led by newly confirmed Chair Kevin Warsh, is set to hold its first policy meeting next week, likely keeping interest rates unchanged but signaling a shift away from potential rate cuts. Markets now anticipate rate hikes by year-end, which could raise borrowing costs for mortgages, auto loans, and businesses. Excluding volatile food and energy prices, core inflation rose modestly by 0.2% monthly and 2.9% annually, suggesting inflationary pressures remain concentrated in energy. President Donald Trump framed the report as positive, attributing inflation to energy costs tied to geopolitical tensions, particularly the Iran conflict. He claimed inflation would ease once the war ends, though US airstrikes against Iran escalated Wednesday, pushing crude prices back above $90 per barrel. Other price increases included a 4.8% annual rise in clothing costs, a 27% jump in airline fares driven by jet fuel prices, and a 5.9% increase in electricity costs over the past year. Grocery prices rose only 0.1% monthly but remain 2.7% higher than last year, reflecting lingering pandemic-era inflation. Economists warn the economy remains vulnerable, with Omair Sharif of Inflation Markets noting risks of further instability.