- US inflation reached 4.1% in May as energy costs and tariffs kept pressure on household budgets.
- The Fed faces a tough path as inflation stays high while consumer spending and jobs remain steady.
- Bitcoin and Ether showed cautious moves after fresh inflation data shaped market expectations.
U.S. inflation rose to 4.1% in May, reaching its highest level since April 2023 and keeping pressure on the Federal Reserve as it considers its next interest rate move. New data from the Commerce Department showed that consumer prices continued to increase, leaving inflation well above the central bank’s 2% target.
Higher energy costs helped drive the increase after tensions in the Middle East pushed oil and gasoline prices higher. While fuel prices have eased in recent weeks following a ceasefire, many households continue to face pressure from the rising cost of living as inflation remains elevated.
Energy Costs Keep Inflation Elevated
The Bureau of Economic Analysis reported that the PCE price index increased 0.4% in May from the previous month. That matched April’s monthly gain. Meanwhile, annual inflation rose from 3.8% in April to 4.1% in May.
Recent conflict involving Iran pushed oil prices higher and increased gasoline costs. However, a preliminary peace agreement signed last week by President Donald Trump and Iranian President Masoud Pezeshkian has improved expectations for energy supplies. The agreement could help reopen shipping routes and oil flows disrupted during the conflict.
Consumers already faced higher costs before the conflict because of Trump’s broad import tariffs. Consequently, inflation remains a key political issue ahead of November’s midterm elections. Trump won the 2024 election partly on promises to reduce inflation and lower household costs.
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Excluding food and energy, core PCE inflation rose 3.4% annually in May, up from 3.3% in April. Additionally, core prices increased 0.3% during the month.
Fed Faces Pressure as Spending Holds Up
The Federal Reserve aims to keep inflation near 2%, but price growth remains well above that target. Last week, policymakers left interest rates unchanged at 3.50% to 3.75%. However, updated forecasts signaled that officials expect borrowing costs to rise later this year as inflation remains stubbornly high.
Even with higher prices, consumers continued to spend. Consumer spending rose 0.7% in May after increasing 0.4% in April. Higher tax refunds, gains in the stock market and savings built up over time helped support household spending.
The labor market also remained relatively strong. New applications for unemployment benefits fell to 215,000 in the week ended June 20, coming in below economists’ expectations.
The crypto market responded cautiously to the latest inflation data. Bitcoin rose 1.1% after dropping below $60,000 on Wednesday, its lowest level since October 2024. Ether gained 1.5% and traded around $1,644 after recovering from earlier losses.
Related: Yen Weakness Tests Japan’s Resolve and Reserve Firepower
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