US inflation rises to three-year high as energy costs climb

US consumer prices rose at their fastest pace in three years in May, with inflation reaching 4.2%, according to the Bureau of Labor Statistics. The increase, from 3.8% in April, was driven largely by higher energy costs and petrol prices linked to the war in Iran. It was the third month in a row that the Consumer Price Index has increased, adding to pressure on households and reinforcing concerns about how quickly the shock is feeding through to the wider economy.

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The latest figures were accompanied by unusually direct political comments from President Donald Trump, who said at the White House that he "loves the inflation" and later said prices would come down "like a rock" when the conflict with Iran was over. He also said US forces had conducted nighttime operations to take "millions of barrels" of oil from Iran, which he said had helped push oil prices slightly lower. Later, he told the New York Post that his remarks had been taken out of context and that he meant inflation was "much lower than anticipated" despite the war.

The Bureau of Labor Statistics said overall energy bills, including gas and electricity, were almost a quarter higher in May than a year earlier. Petrol accounted for much of the increase, with the average price of a gallon of regular petrol in the US at $4.15, up from $2.98 on 28 February, when Trump launched strikes on Iran. Separate figures from the AAA motoring group showed the same sharp rise in fuel costs, underlining how quickly the conflict has affected consumers at the pump.

The latest reading is the highest since April 2023, when the US was still dealing with the effects of the energy shock linked to Russia's invasion of Ukraine. The rise matters because it increases the likelihood that the Federal Reserve will consider raising interest rates to try to curb spending. The Fed's long-term inflation target is 2%, so the latest figure remains well above the level policymakers aim to maintain.

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Higher borrowing costs can slow demand, but they can also add pressure to households and businesses already facing higher prices. The data also comes at a politically sensitive moment, with voters still ranking the economy as a top concern ahead of November's midterm elections. The disruption to oil and gas flows through the Strait of Hormuz is significant because the waterway typically carries around a fifth of the world's supply of those fuels.

That makes the inflation reading more than a domestic economic story, because it reflects a wider energy shock with implications for global markets. Brent crude remains significantly higher than pre-war levels, suggesting the pressure on fuel costs has not yet eased. The figures also show how a military conflict can quickly feed into consumer prices through transport and household energy bills.

The latest inflation print is part of a broader pattern of rising prices since the conflict escalated, and it adds to scrutiny of how long the energy shock will last. What remains unclear is whether oil and petrol prices will stabilise if the fighting eases, and how quickly that would feed through to consumer bills. Markets will also be watching the Federal Reserve's response and whether further disruption to shipping or oil production changes the outlook again.

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