Inflation spiked to 4.2%, a three-year high, in May

Consumer price inflation reached 4.2% in May, the highest mark in three years, boosted largely by higher energy prices that have spiked because of the Iran war, according to federal numbers released on Wednesday.

The higher year-over-year inflation rate was expected. But at more than double the Federal Reserve’s target rate of 2%, the new numbers dimmed hopes for a cut in the interest rate.

States face more budget pressures amid rising costs, slow growth

The so-called core inflation rate, which excludes volatile food and fuel costs, was 2.9%. Apparel costs were up 4.8% and the cost of transportation services increased by 4.1%.

Even before today’s report, the conservative-leaning American Enterprise Institute said that “Trump’s war of choice in Iran, coupled with his reckless budget and import tariff policies, offer strong arguments against the appropriateness of an interest rate cut at this juncture.”

The costs of the Iran war have  already outstripped recent economic benefits from bigger tax refunds under the Trump administration, according to a June 1 report from Moody’s Analytics.

“The bigger tax refunds Americans have received this year no longer cover the higher costs of gasoline, diesel, and jet fuel caused by the war,” Mark Zandi,  chief economist for Moody’s Analytics, wrote in a social media post. “This is a big economic blow, but deficit-financed tax cuts have cushioned it — until now,” Zandi wrote.

The largest cost increases in the past year were for fuel oil, up 58.9% and gasoline, up 40.5%. The only decreases were in used car and truck prices, down 2%, and medical care commodities, down 1.8%.

Overall inflation was highest in the Northeast and Midwest at 5%, and lowest in the West at 3.5%.  It was 3.9% in the South.

A few metro areas reported separately. The highest rate was 5.1%, for both Honolulu, Hawaii, and the New York City area, including parts of New Jersey and Pennsylvania. The next highest rates were 4.7% for Minneapolis-St. Paul,  4.1% for the Washington, D.C.,  area including parts of Maryland, Virginia and West Virginia, and 3.2% for the Tampa, Florida, area.

Stateline reporter Tim Henderson can be reached at [email protected].