U.S. Consumer Prices Rise 0.5% in May; Annual Inflation Accelerates to 4.2% Ahead of Fed Meeting

U.S. consumer prices rose 0.5% in May from the prior month and 4.2% from a year earlier, the fastest annual increase since April 2023, as gasoline and shelter costs drove much of the gain in a closely watched inflation report released Wednesday just days before the Federal Reserve’s June meeting.

“The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent on a seasonally adjusted basis in May, after rising 0.6 percent in April, the U.S. Bureau of Labor Statistics reported today,” the agency said. The 12-month increase accelerated from 3.8% in April to 4.2% in May, based on data that are not seasonally adjusted.

Core inflation, which strips out food and energy prices and is often watched as a gauge of underlying price pressures, was more moderate. The Bureau of Labor Statistics said the index for all items less food and energy rose 0.2% in May and was up 2.9% from a year earlier.

Energy was the clearest driver of the monthly increase. The energy index rose 3.9% in May and was up 23.5% from a year earlier. Within that, gasoline prices jumped 7.0% on a seasonally adjusted basis in May and were 40.5% higher than a year earlier. “The energy index accounted for over sixty percent of the monthly all items increase,” the BLS said.

Shelter, another major component of household spending, rose 0.3% in May and was up 3.4% over the past 12 months. Owners’ equivalent rent, a measure that tracks the implicit rent homeowners would pay for a similar residence, also increased 0.3% in May and 3.3% from a year earlier.

Food prices posted a smaller increase. The food index rose 0.2% in May and was up 3.1% from a year earlier. Food at home, a proxy for grocery prices, rose 0.1% in the month, while food away from home increased 0.3%. The BLS also noted monthly increases in categories including communication, airline fares and medical care, while motor vehicle insurance, household furnishings and operations, and new vehicles declined.

The report arrives less than a week before the Fed’s June 16-17 policy meeting, where officials will assess inflation alongside the labor market and broader economic data. As of the central bank’s April 29 statement, the target range for the federal funds rate stood at 3.50% to 3.75%.

The Fed’s formal 2% inflation target is tied to a different measure, the Personal Consumption Expenditures price index, rather than CPI. Still, that gauge has also remained elevated: The latest available reading showed the PCE price index up about 3.8% from a year earlier in April, with core PCE at about 3.3%. The May jobs report, released June 5, showed payroll growth of 172,000 and an unemployment rate of 4.3%.

For consumers, the latest CPI report underscores how gasoline and housing costs — two of the most visible and unavoidable items in household budgets — continue to shape the inflation picture.