Energy prices rises 3.9% in May alone, Gasoline prices surges by as much as 40%, while fuel oil climbes 59%
Customers shop for groceries at a Walmart Supercenter retail store in North Bergen, New Jersey, US, November 21, 2025. Photo: Reuters
US inflation surged to a three-year high in May, driven largely by soaring energy costs linked to the ongoing conflict with Iran, adding pressure on households and complicating the Federal Reserve’s policy outlook.
The consumer price index (CPI), a broad measure of goods and services costs across the US economy, rose 0.5% in May on a seasonally adjusted basis, taking the annual inflation rate to 4.2%, according to data from the Bureau of Labour Statistics cited by NBC.
The 4.2% annual rate marks the highest level since April 2023 and represents the third consecutive monthly increase, largely fuelled by a sharp rise in energy prices amid escalating geopolitical tensions in the Middle East.
The inflation spike came as the economic effects of US-Israeli military strikes on Iran — which began on February 28 — increasingly filter through to global markets and consumer prices. Disruptions to energy supplies and fears over shipping through the Strait of Hormuz, a key artery for global oil and gas, have pushed fuel costs sharply higher.
Energy prices rose 3.9% in May alone, with the 12-month increase reaching 23.5%. Gasoline prices have surged by as much as 40%, while fuel oil has climbed 59%, reflecting the scale of the supply shock. Airline fares also jumped 2.7%, highlighting the pass-through of higher fuel costs to consumers.
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“Americans are getting squeezed financially by inflation that’s back at a three-year high,” said Heather Long, chief economist at Navy Federal Credit Union. She noted that essential expenses — including gas, food, electricity and healthcare — remain key pressure points for households.
Despite the headline surge, underlying inflation pressures showed signs of moderation. Core CPI, which excludes volatile food and energy prices, rose 0.2% in May and 2.9% year-on-year — both in line with expectations but softer than April’s pace. Core commodities prices declined slightly, suggesting limited impact from tariffs and easing goods inflation.
Food prices increased by a modest 0.2%, while shelter costs — a major component of inflation — rose 0.3% for the month and 3.4% annually. Transportation services fell 0.6%, indicating that energy cost increases have not yet fully spread across the broader services sector.
However, analysts warn that the full impact of the energy shock may still lie ahead, particularly as winter approaches and demand for fuel intensifies. Financial markets have reacted nervously to the inflation data and the escalating conflict.
Stock futures remained under pressure following the release, while bond yields held steady. Investor concerns are centred not only on inflation but also on the risk of prolonged disruption in energy markets and tighter monetary policy.
The Federal Reserve is widely expected to keep interest rates unchanged at its upcoming June 17 meeting. However, markets are increasingly pricing in the possibility of a rate hike later in the year as policymakers grapple with persistent inflation risks.
Rising prices are also outpacing wage growth, which is running at just above 3% annually, deepening the squeeze on household purchasing power and posing a growing political challenge for President Donald Trump ahead of mid-term elections.
Global implications of the conflict are becoming more pronounced. Europe, heavily reliant on imported energy, faces greater vulnerability, while even the US — the world’s largest oil producer — is not immune to the inflationary fallout.
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Forecasts from Barclays suggest Brent crude could average $100 per barrel in 2026 if supply routes stabilise soon, but prices could rise further if disruptions persist. Energy executives have also warned that restoring balance to oil markets could take more than a year due to infrastructure damage and depleted reserves.
As the conflict drags on with no clear resolution, economists warn that inflationary pressures are likely to persist, with food prices and energy costs expected to rise further in the months ahead.
For now, while some core inflation indicators remain contained, the broader picture points to an economy increasingly shaped by geopolitical risks — and consumers bearing the cost.
