Inflation rose three-tenths of a percentage point to 4.1% for the year ending in May, the Bureau of Labor Statistics reported Thursday in an update to the personal consumption expenditures index, the Federal Reserve’s preferred gauge.
The rise in inflation was largely a reflection of the energy supply disruptions from the war with Iran hitting the economy. Oil prices have since come down after President Donald Trump signed a memorandum of understanding on peace talks.
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The PCE inflation reading is the highest since 2023.
“Inflation is at a 3-year high due to the war in Iran and it’s painful for middle-class and moderate-income Americans,” said Heather Long, chief economist at Navy Federal Credit Union. “People are spending more on gas, along with healthcare and utilities.”
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In March alone, prices rose 0.4%.
Core inflation, which strips out volatile food and energy prices, rose a tenth of a percentage point to 3.4% on an annual basis. Core inflation remained at 0.3% on a monthly basis.
The report showed that the war in Iran has continued to put upward pressure on inflation, which had been steady for much of the past year, albeit still above the 2% Fed target.
And although both sides have worked to reach a peace deal, there are still concerns that the war could resume.
Still, oil prices have fallen substantially as hostilities have ramped down. West Texas Intermediate crude, the benchmark for United States prices, dipped below $70 per barrel Thursday, the lowest it has been since the war began. Prices for gasoline and diesel fuel, too, have declined in recent days.
Still, there are signs that underlying inflation is hot, even aside from the energy supply problems.
The Fed hasn’t been able to achieve its target of 2% inflation since inflation began taking off in early 2021.
The Fed recently convened its first meeting under new Chairman Kevin Warsh.
The Fed’s monetary policy committee announced it would hold its rate target at a range of 3.50% to 3.75%, an outcome that was expected given the recent bout of inflation.
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And the labor market has been relatively robust, which has weighed against a rate cut by the Fed.
The economy added a strong 172,000 new payroll jobs in May, the Bureau of Labor Statistics reported. The unemployment rate remained at a relatively low 4.3%.
