Inflation in the United States accelerated at its fastest pace in three years as the US-Israel campaign against Iran pushed energy prices higher. According to a report released May 29 by the Commerce Department's Bureau of Economic Analysis, the Personal Consumption Expenditures (PCE) price index — the Federal Reserve's preferred inflation measure — rose 3.8% from a year earlier in April, following a 3.5% increase in March.
Month over month, the PCE index rose 0.4% in April, down from a 0.7% gain the previous month. Goods prices overall increased 0.7%, with the largest contribution coming from gas stations, where fuel prices jumped 5.5% as tensions with Iran disrupted global energy markets. The average gasoline price now stands at $4.42 per gallon, up from $4.17 the previous month and $2.98 on February 28, when the U.S. and Israel launched strikes on Iran.
Food prices also rose 0.5%, marking the largest monthly increase since November 2022. Housing and utility costs climbed 0.6%. Consumer spending increased 0.5% after a 1% rise in March. Many consumers are dipping into savings, as the saving rate fell 2.6% last month.
Rising inflation puts pressure on the Fed ahead of its first policy meeting under new Chairman Kevin Warsh, scheduled for June 16-17. The central bank targets a 2% inflation rate as measured by the PCE index.
“The inflation picture is increasingly uncomfortable for the Fed,” said Olu Sonola, Head of U.S. Economics at Fitch Ratings. “Price pressures are likely to persist in the coming months, and while the Fed cannot fix a supply shock, it also cannot ignore a shock that is seeping into core inflation.”
Analysts broadly expect the Fed to keep interest rates in the 3.50%-3.75% range until at least 2027. A recent analysis by JPMorgan Chase projects rates will remain steady until mid-2027, when a rate hike is anticipated instead of a cut. This aligns with minutes from the central bank's April 28-29 meeting, where policymakers tilted toward the possibility of raising rates.
U.S. stock markets maintained an upward trend despite the high inflation report. The Nasdaq rose 0.6%, the S&P 500 gained 0.5%, while the Dow Jones Industrial Average was nearly flat, up 0.05% in midday trading. The White House did not comment on Al Jazeera's request for a response.
