US inflation hit 4.2% in May. The highest level in three years, driven largely by rising energy prices, according to the Bureau of Labor Statistics. This marked the third consecutive monthly increase following the start of the US-Israel-Iran conflict, with prices rising at an annual rate of 3.3% in March and 3.8% in April. In February, before the conflict began, inflation was at 2.4%.

Elevated Energy Costs and Consumer Impact

Energy prices were responsible for 60% of the May CPI increase, with gasoline prices averaging $4.15 per gallon, $1 higher than a year ago. Airline fares also surged by 26.7% annually. The White House stated that despite the disruptions caused by Iran, President Trump’s economic agenda has delivered “meaningful results for the American people.” Kush Desai, a White House spokesperson, noted that prices for prescription drugs, dairy products, and insurance continue to decline due to Trump administration policies.

Broader Economic Pressures and Global Reactions

Stripping out volatile energy and food prices, core CPI rose 2.9% in May. Inflation in Argentina also surged to 3.4% in March, with an annual increase of 32.6%, the highest since March 2025. Argentina’s government, led by Javier Milei, has struggled to curb inflation amid a deep consumer crisis. Meanwhile, in Australia, the Australian Dollar saw gains as geopolitical tensions eased and China reported a trade surplus of $105.43 billion in May, the highest since January.

Gold prices fell 0.6% to $4,686.35 per ounce as investors grew pessimistic about the Federal Reserve’s ability to cut interest rates this year due to persistent US inflation fueled by the war with Iran. Producer inflation in the US also rose more than expected in April, with the largest increase since early 2022.

Food and Services Inflation Widen Concerns

April’s inflation was driven by a 3.8% rise in energy prices, which accounted for over 40% of the CPI increase. Petrol prices jumped 5.4% in April after a 21.2% surge in March, and diesel prices climbed 17%. Food prices rose 0.5% in April, with grocery inflation at 0.7%, the largest increase since August 2022. Beef prices increased by 2.7%, the highest since November 2024, while coffee prices climbed 2% and fruit and vegetable prices rose by 1.8%.

Economists warned that food inflation could persist due to disruptions in fertilizer supply and global distribution chains, particularly around the Strait of Hormuz. Electricity tariffs also increased due to rising demand from artificial intelligence data centers. The White House emphasized that the broader economic agenda is delivering results, though critics argue that inflation remains a significant challenge for American households.