The main driver of growth has been rising energy prices amid the conflict in the Middle East, which reduces the likelihood of an imminent easing of monetary policy by the Federal Reserve, Reuters notes.
Energy prices are driving up costs again
According to the U.S. Department of Labor, the Consumer Price Index (CPI) rose 4.2% in May compared to the same period last year, up from 3.8% in April. On a monthly basis, prices rose by 0.5%, in line with analysts’ expectations.
The main source of inflationary pressure was the sharp rise in the cost of fuel and other energy products. The annual increase in energy prices reached 23.5%, and the cost of gasoline was more than 40% higher than last year’s level.
Economists attribute this trend to tensions in the Middle East and their impact on global energy markets.
At the same time, core inflation, which excludes food and energy prices, stood at 2.9%, indicating more moderate price growth in most other categories of goods and services, Reuters notes.
The Fed may keep rates high longer
The new data strengthens the case for keeping interest rates at their current level, the publication notes. Inflation is more than double the Fed’s 2% target, and price growth is once again outpacing income growth.
Analysts estimate that the U.S. central bank is now highly likely to maintain a cautious approach and may postpone rate cuts for a longer period.
The situation is complicated by the fact that the acceleration in inflation is occurring against the backdrop of a stable labor market. Unemployment in the U.S. remains relatively low, and the economy continues to create new jobs, which reduces the need for emergency economic stimulus from the Fed.
