US consumer prices rose at their fastest pace in three years in May, with the US inflation Iran war dynamic pushing the Consumer Price Index (CPI) up to 4.2% year-on-year, accelerating from 3.8% in April, according to Bureau of Labor Statistics (BLS) figures. President Donald Trump, responding to the data at the White House, declared: ‘I love it. The numbers were great. You know what I really love? I love the inflation.’
The remarks were swiftly seized upon by political opponents. Senate Democratic Leader Chuck Schumer posted on X: ‘His contempt for you knows no bounds.’ Trump later told the New York Post that his comments were taken out of context and that he meant inflation was ‘much lower than anticipated’, despite the Iran war. He also promised that prices would ‘come down like a rock’ once the conflict ended.
Energy costs at the heart of the US inflation Iran war surge
The principal driver of May’s acceleration was energy. Overall energy bills, including gas and electricity, were almost a quarter higher in May than a year earlier, with petrol responsible for much of that increase. According to motoring group the AAA, the average price of a gallon of regular petrol in the United States currently stands at $4.15, a sharp increase from $2.98 on 28 February, when Trump launched strikes on Iran.
Iran’s response has effectively shuttered the Strait of Hormuz, the waterway that typically ships around a fifth of the world’s oil and gas. Economists have warned that, even with a swift resolution to the conflict, it could take until 2027 for normal flows of goods through the strait to be restored. The global benchmark for oil, Brent crude, remains significantly above pre-war levels. Trump pointed to a trip to Iowa in early 2026 where he said he saw petrol selling for $1.85 per gallon, telling reporters: ‘We will be back at those levels very soon.’
Wednesday marked the third consecutive month in which the CPI has risen. Beyond energy, the Bureau of Labor Statistics figures also highlighted rising costs for plane tickets, personal and medical care, recreation and communication. The Fed’s long-term inflation target remains 2%. May’s 4.2% reading compares with the peak of 9.1% recorded under Trump’s predecessor, Joe Biden, in mid-2022, though the trajectory is moving in the wrong direction for an administration that ran on a promise to put cutting inflation at the heart of its agenda.
Trump said that US forces had conducted nighttime operations to take ‘millions of barrels’ of oil from Iran, which he said had contributed to a slight drop in oil prices. On Wednesday night, the US military said it had launched strikes on Iran for the second time in as many days, with both sides exchanging fire despite a ceasefire that took effect in April.
Fed holds rates but several members project a hike before year-end
The Federal Reserve’s rate-setting body, the Federal Open Market Committee (FOMC), voted unanimously to keep its benchmark overnight borrowing rate in a range of 3.5% to 3.75%, according to CNBC. That rate has held at this level since the central bank lowered rates by three-quarters of a percentage point in the latter part of 2025. The decision was the first under Kevin Warsh, the new governor of the Fed, whose appointment Trump championed after repeatedly calling on his predecessor, Jerome Powell, to cut rates.
Warsh’s approach to the meeting carried its own signal. According to Lord Abbett, Warsh did not submit his own expectations about the federal funds rate in the FOMC’s dot-plot survey, consistent with his previously expressed scepticism about the Summary of Economic Projections and dot-plot framework. Nonetheless, several FOMC participants did project at least one rate hike by the end of 2026, according to Lord Abbett, underscoring the pressure building within the committee.
That internal tension is directly connected to the inflation picture. Higher inflation above the Fed’s 2% target typically prompts the board of governors to raise interest rates, which in turn pushes up borrowing costs and restricts the flow of money through the economy. Voters have ranked the economy as a top concern ahead of November’s midterm elections, making the CPI trajectory a political as well as a monetary problem for the White House.
Market analysts are divided on the near-term path. Stephen Brown, chief North America economist at Capital Economics, said May’s rise alone was ‘not large enough to prove any ammo’ to those on the rate-setting committee who want to push interest rates up. Isaac Stell, investment manager at Wealth Club, took a harder line, saying an interest rate hike is ‘the most logical conclusion from today’s data combined with last week’s healthy jobs numbers.’ With several FOMC participants already pencilling in a hike before the end of 2026, the next CPI print will carry considerable weight.
