Inflation accelerated to its highest annual level in more than three years last month, according to new data released Thursday by the Commerce Department, underscoring the continued pressure higher prices are placing on American households.
The department reported that prices, as measured by the personal consumption expenditures (PCE) price index, increased 4.1 percent over the past year. On a monthly basis, prices rose 0.7 percent in May.
Core inflation, which excludes the often-volatile food and energy categories, also remained elevated. Core prices climbed 3.4 percent over the previous 12 months and increased 0.3 percent during May.
The annual inflation rate of 4.1 percent marks the highest reading since April 2023 and follows several months of steadily increasing price growth.
According to the Commerce Department data, the recent acceleration in inflation has been driven by the economic effects stemming from the war in Iran.
Inflation had already remained stubbornly above the Federal Reserve’s long-standing target of 2 percent before President Donald Trump and Israel launched joint military strikes against Iran in February.
Following those strikes, Iran closed the Strait of Hormuz, one of the world’s busiest maritime trade routes, disrupting global commerce and sending prices for oil and other key commodities sharply higher for several months.
The increase in energy costs rippled throughout the economy, contributing to broader price increases that extended well beyond fuel markets.
Earlier this month, however, Trump and Iran announced an agreement to end the conflict. The deal allowed some maritime trade to resume through the Strait of Hormuz, easing pressure on global supply chains and contributing to a noticeable decline in gasoline prices.
While lower gas prices have offered some relief, the Commerce Department’s latest inflation figures suggest that months of elevated energy and food costs have continued to affect other sectors of the economy.
As businesses absorbed higher operating expenses, those costs appeared to spread more broadly, contributing to continued price increases across a variety of goods and services.
The latest figures indicate that affordability remains a significant challenge for many American families, even as energy prices have begun to moderate following the reopening of maritime traffic through the Strait of Hormuz.
Food and energy costs have played a central role in the recent inflation surge, but the persistence of elevated core inflation suggests that broader price pressures have become more deeply embedded throughout the economy.
The Federal Reserve has maintained a preferred inflation target of 2 percent, making the current 4.1 percent annual reading more than double that objective.
Thursday’s report illustrates how international events and disruptions to global trade can have lasting effects on domestic prices. Although the agreement ending the conflict between the United States and Iran has helped lower gasoline prices by reopening portions of the Strait of Hormuz, the inflationary effects that built up over several months continue to weigh on consumers.
With inflation now reaching its highest point in more than three years, many Americans continue to face higher costs for everyday necessities as price increases remain well above the Federal Reserve’s target. The latest Commerce Department report suggests that while some pressures have eased following the agreement to end the conflict, the broader impact of months of rising energy and food costs continues to be felt throughout the U.S. economy.
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