US inflation climbs to 4.2% and hits 3-year high amid rising fuel costs

US inflation climbed to 4.2% in May, marking a three-year high and the third consecutive monthly increase, according to the Labor Department. The rise was primarily fueled by energy costs, which accounted for over 60% of the monthly price surge, pushing consumer prices up 0.5% from April. Wages have not kept pace with inflation, straining household budgets and prompting consumers to reduce spending on essentials like gasoline and dip into savings. The Federal Reserve’s 2% inflation target remains out of reach, with markets anticipating potential interest rate hikes later this year. New Fed Chair Kevin Warsh will oversee the central bank’s next policy meeting, where officials are expected to signal a shift away from rate cuts, given persistent inflationary pressures. Higher borrowing costs could further tighten financial conditions for mortgages, auto loans, and business credit. While energy prices drove the headline inflation spike, core prices excluding food and energy rose more modestly at 0.2% monthly and 2.9% annually. Economists note that services inflation, including childcare and healthcare, remains elevated, signaling underlying inflationary pressures beyond energy. Grocery prices grew 2.7% year-over-year, though May’s 0.1% monthly increase was slower than recent months. President Donald Trump praised the inflation report, attributing gains to energy costs and suggesting prices would ease if the Iran conflict de-escalated. However, US airstrikes against Iran on Wednesday escalated tensions, pushing crude oil prices back above $90 per barrel. Trump also indicated further strikes were planned, complicating expectations for near-term relief in fuel costs. Retailers report changing consumer behavior, with shoppers purchasing smaller quantities of gas and other goods. Airline fares surged 27% annually, while electricity and clothing prices also rose sharply. Economists warn that despite recent cooling in some sectors, broader inflation risks persist, particularly in services.