US consumer prices rose at the fastest annual pace in three years in May, with energy costs surging as the Middle East conflict pushed inflation further above the Fed's 2% target.
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US inflation hits 3-year high at 4.2% as oil costs surge
US consumer prices rose at the fastest annual pace in three years in May, with energy costs surging as the Middle East conflict pushed inflation further above the Fed's 2% target.
US inflation accelerated to a 4.2% annual rate in May, the hottest reading in three years, as surging oil costs tied to the Middle East conflict pushed energy prices higher across the economy, according to federal data released Wednesday.
"The persistence of energy-driven inflation is delaying the path to rate normalization," economists at Goldman Sachs Research wrote in a note Wednesday, pushing back their forecast for the first Fed rate cut to June 2027 from December 2026. The bank also moved its second projected cut to December 2027 from March 2027.
The May reading matched the 4.2% consensus estimate from economists surveyed by Dow Jones Newswires, according to data released by the Bureau of Labor Statistics. Energy costs accounted for the bulk of the monthly increase as crude prices climbed on supply disruption risks from the Middle East, the data showed.
The data strengthens the case for the Federal Reserve to maintain its benchmark rate at elevated levels through year-end, with Goldman Sachs now expecting only two quarter-point cuts in 2027. The central bank has held its policy rate steady since last year, and the May CPI print reduces the likelihood of any near-term easing.
The last time inflation ran this hot was in mid-2023, when the annual CPI peaked above 4% before beginning a gradual descent. That decline stalled as energy prices began their current ascent, and the May print confirms the trend has reversed. Economists surveyed ahead of the release had expected inflation to continue rising due to higher energy costs, according to the Wall Street consensus.
Goldman Sachs's revised forecast aligns with a broader repricing among Wall Street banks, which have pushed their first-cut expectations further into 2027 in recent weeks. If energy prices continue to climb amid the ongoing Middle East conflict, economists warn that the timeline for rate relief could extend even further.
This article is for informational purposes only and does not constitute investment advice.
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