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Inflation in the US exceeds 4 percent. Fed far from its target
Inflation in the US is accelerating again, dampening hopes for early Fed cuts
CPI, or the Consumer Price Index, in the United States rose to 4,2% year on year in May 2026, the Bureau of Labor Statistics said. The reading matched market expectations and was the highest since April 2023.
For ordinary consumers, that means prices in the U.S. economy are rising much faster than the Fed‘s 2% target. This is the 63rd straight month that inflation has remained above that level.
On a month-on-month basis, the consumer price index rose by 0,5% after increasing by 0,6% in April and 0,9% in March. The 6-month rolling average came in at 0,47%, the highest since October 2022.
On the futures market, this picture is limiting hopes for quick interest rate cuts in the US. Before the report was released, the probability of at least a 25-basis-point increase in the federal funds rate by December 2026 was priced at nearly 70%.
Fuel drives CPI higher as service prices keep rising
May’s rise in CPI was driven mainly by fuel. Gasoline became 7,0% more expensive month on month and was 40,5% pricier than a year earlier. Heating oil rose by 3,8% m/m and by almost 60% y/y.
Energy was also more expensive. Electricity prices rose by 5,9% y/y, while natural gas increased by 3,0%. The increase in prices for industrial goods excluding food and energy remained relatively subdued at 1,1% y/y.
Price pressure is also persisting in services. Their prices were on average 3,4% higher than a year earlier and 0,3% higher than a month earlier. That is a sign that expensive fuel is starting to feed through into other parts of the economy as well.
Core inflation, which excludes food, fuel and energy, came in at 0,2% m/m and 2,9% y/y in May. That was close to analysts’ expectations of 0,3% m/m and 2,9% y/y. Back in January and February, core inflation stood at 2,5% and was the lowest in 5 years.
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