Inflation Accelerates to Highest Annual Rate in More Than Three Years Ahead of Fed Meeting

U.S. inflation accelerated in May to its highest annual pace in more than three years, reinforcing the challenge facing Federal Reserve policymakers as they weigh their next move on interest rates.

The Consumer Price Index rose 0.5% month over month, in line with consensus expectations and slightly below April’s 0.6% increase, according to data released Wednesday by the Bureau of Labor Statistics. On a year-over-year basis, CPI climbed 4.2%, matching forecasts but up from 3.8% in April and marking the fastest pace since April 2023.

Core inflation, which excludes food and energy, showed some signs of moderation. Core CPI increased 0.2% in May, below the 0.3% consensus estimate and down from 0.4% the prior month. Annual core inflation edged up to 2.9% from 2.8%.

Food prices were less of a driver than expected, rising 0.2% during the month compared to 0.5% in April. Grocery prices helped temper overall gains, while food away from home increased 0.3%.

The report arrives just ahead of the Federal Open Market Committee’s upcoming meeting, the first under new Chair Kevin Warsh. While political pressure for rate cuts has intensified, persistent inflation above the Fed’s 2% target continues to complicate the policy outlook.