May CPI Hits 4.2% Y/Y, Fastest in Three Years; Core Holds at 2.9%

Consumer prices rose 4.2% year-over-year in May, the fastest annual inflation rate in three years, the Bureau of Labor Statistics reported Wednesday. The print matched the Dow Jones consensus estimate.

Energy prices drove the acceleration. The energy index climbed 3.9% month-over-month, accounting for 60% of the monthly all-items increase, the bureau said. That followed a 3.8% monthly gain in April and a 10.9% surge in March after the U.S. launched military operations against Iran.

The headline CPI rose 0.5% month-over-month on a seasonally adjusted basis. Shelter costs added 0.3% for the month. Food prices edged up 0.2%, with the food-at-home index rising 0.1%.

Core inflation, which strips out volatile food and energy components, rose 0.2% in May and held at 2.9% year-over-year. The Federal Reserve tracks core inflation as a primary input for monetary policy decisions.

The Fed has kept interest rates elevated to bring inflation down toward its 2% target. The central bank is now under new leadership: Kevin Warsh, President Donald Trump's pick, succeeded Jerome Powell, also a Trump appointee.

The Federal Open Market Committee will release its next interest rate decision on June 17.