AT AN GLANCE
- Inflation rose to 4.2% in May, the highest annual rate since early 2023.
- Wage growth lagged behind inflation, with average hourly earnings up 3.4% over the year.
- Energy prices drove much of the increase, with gasoline prices up more than 40% from a year ago.
- Core inflation, which excludes food and energy, rose 2.9% over the year.
Inflation’s Rise Has Surpassed Wage Growth, Which Was Tracking At 3.4% In The Most Recent Jobs Report
Inflation jumped to 4.2% in May, marking the highest annual rate since early 2023 and putting fresh pressure on households already stretched by higher everyday costs.
The Consumer Price Index rose 0.5% in May after increasing 0.6% in April, according to the Bureau of Labor Statistics. Over the past 12 months, the all-items index rose 4.2% before seasonal adjustment, up from 3.8% in April.
The latest inflation report shows that higher fuel costs are still working their way through the broader economy, hitting consumers at the pump while also pushing up prices in other parts of daily life.
Energy Prices Drive Most Of The Increase, Wages Are Not Keeping Up
Energy costs were the biggest driver behind May’s inflation increase. The energy index rose 3.9% in May after increasing 3.8% in April and 10.9% in March. Federal data showed energy accounted for more than 60% of the overall monthly increase.
Over the past year, the energy index rose 23.5%, while gasoline prices climbed 40.5%. That increase has become a major concern for consumers, especially as higher transportation and shipping costs can eventually show up in the price of groceries, clothing, airline fares and other goods.
Gas prices have eased from earlier highs this year, but drivers are still paying significantly more than they were before oil prices surged following the U.S. and Israel’s war against Iran.
The inflation jump comes as wage growth has slowed. Average hourly earnings were up 3.4% over the year in the most recent jobs report, meaning inflation is now rising faster than paychecks for many workers.
That gap matters because it weakens real buying power. Even when workers see modest raises, those gains can be swallowed by higher rent, food, gas, medical care and household expenses.
The Bureau of Labor Statistics also reported that real average weekly earnings fell in May, another sign that inflation is cutting into what families can actually afford.
Prices Rose In Several Key Categories
Core inflation, which strips out food and energy, rose 2.9% over the past year and 0.2% in May. Several categories increased during the month, including communication, airline fares, medical care, personal care and recreation.
Shelter also rose 0.3% in May, continuing to weigh on household budgets. Rent increased 0.4%, while owners’ equivalent rent rose 0.3%.
There were some price drops. Motor vehicle insurance, household furnishings and new vehicles declined in May. Prescription drug prices also fell 0.9% for the month.
Some food categories also moved lower. Dairy prices fell 0.6%, cheese prices dropped 2.9%, and the index for meats, poultry, fish and eggs declined 0.2%. Still, food prices overall rose 3.1% over the past year.
Inflation Pressure Could Continue
Economists have warned that higher energy prices can take months to fully move through the economy. That means May’s inflation report may not be the final word on how fuel costs affect consumers this summer.
Tariffs proposed by President Donald Trump could also add another layer of uncertainty. If finalized, those tariffs could affect imports from major trading partners and raise prices on some apparel, appliances and household goods.
For now, the latest numbers point to a familiar problem for American families: prices are rising faster than wages, and the cost of living remains one of the biggest economic pain points in the country.
