‘I love the inflation’: Trump comments on Consumer Price Index as it vaults above 4%

WASHINGTON - U.S. consumer inflation increased at its fastest pace in three years in May, boosted by surging prices for energy products amid the Middle East conflict, and giving more ammunition for the Federal Reserve to keep interest rates unchanged into 2027.

The third straight month of strong increases in the Consumer Price Index reported by the Labor Department on Wednesday underscored the mounting pressure on households, that are increasingly tapping their savings to fund spending.

Inflation eroded wages for a second consecutive month in May, which could weigh on overall economic growth. The soaring cost of living is a political liability for President Donald Trump and his Republican Party, seeking to retain control of Congress in the midterm elections in November. Trump won the 2024 presidential election in large part because of his promise to lower inflation, but has seen his approval rating tumble as frustration mounts over his handling of the economy.

Asked about the rising price pressures, Trump told reporters, "I love the inflation," adding that "it's going to come down like a rock" when the U.S.-led war with Iran ends.

The Consumer Price Index increased 4.2% in the 12 months through May, the largest gain since April 2023, the Labor Department's Bureau of Labor Statistics said. The CPI advanced 3.8% year-on-year in April and rose 3.3% in March. Prices increased 0.5% over the month after climbing 0.6% in April. The rise in inflation was in line with economists' expectations.

The U.S. central bank tracks the Personal Consumption Expenditures Price Indexes for its 2% inflation target. All inflation measures are running well above the Fed's target. Real average hourly earnings dropped 0.7% in the 12 months through May after falling 0.3% in April.

"Americans are getting squeezed financially by inflation," said Heather Long, chief economist at Navy Federal Credit Union. "It's not just bad vibes about the economy now, there are real financial pressures, especially on middle-class and lower-income households."

A 3.9% jump in the price of energy goods accounted for more than 60% of the rise in the monthly CPI. Energy prices rose 3.8% in April. They vaulted 23.5% in the 12 months through May. Gasoline prices accelerated 7.0% over the month and were up 40.5% from a year ago. Prices at the pump have retreated in recent weeks as oil prices eased, raising cautious optimism among economists that May could be the peak in CPI inflation.

But the U.S. and Iran engaged in tit-for-tat strikes on Tuesday, with Trump saying on Wednesday Tehran had taken too long to negotiate a deal and would now "have to pay the price."

Inflation last month was also lifted by higher rents. While food price growth slowed after accelerating in April, risks remained to the upside as the conflict, now in its fourth month, has raised the cost of fertilizers.

Grocery prices edged up 0.1%, with increases in the prices of nonalcoholic beverages, cereals and bakery products as well as fruits and vegetables partially offset by decreases in the cost of meat and dairy products.

Stocks on Wall Street fell. The dollar was steady against a basket of currencies. U.S. Treasury yields rose.

Following news last week that the economy posted a third successive month of above-expectations job growth in May, financial markets started pricing in a rate hike. The CPI report, however, suggested the oil price shock was not yet spilling over to the broader economy, and remained mostly confined to the transportation sector. There were also signs that the pass-through from import tariffs was fading.

Economists continued to believe the bar remained high for monetary policy tightening. They expected the Fed to leave its benchmark overnight interest rate in the 3.50%-3.75% range at next week's meeting, but ditch its easing bias.

Excluding the volatile food and energy components, the CPI increased 2.9% year-on-year in May after rising 2.8% in April.

The so-called core CPI gained 0.2% over the month after rising 0.4% in April. The slowdown reflected a 1.7% drop in motor vehicle insurance, the largest decline since October 2020. Economists said the decrease was at odds with the reality of higher motor vehicle insurance. The drop was unlikely to be reflected in the core PCE inflation measure, which uses the component from the Producer Price Index report.

Also, while the artificial intelligence spending boom is driving up prices of computers and software, those have a smaller weighting in the core CPI basket. The weighting is larger in the core PCE inflation basket.

Prices for household furnishings and supplies fell while those of apparel rose moderately, suggesting the inflation boost from import duties was nearing an end. New vehicle prices fell and the cost of used cars and trucks edged up 0.1%. Core goods prices dipped 0.1%.

Rents increased a solid 0.4%, with owners' equivalent rent of primary residence rising 0.3%. Rent measures had increased 0.5% in April, lifted by a one-time adjustment after last year's shutdown of the government prevented data collection. Economists had expected the effects to fade in May.

Airline fares advanced 2.7% after increasing 2.8% in April, reflecting higher jet fuel prices. They soared 26.7% year-on-year. The cost of healthcare increased 0.5%, driven by dental and hospital services. The overall cost of services, excluding energy, climbed 0.3% after accelerating 0.5% in April.

Based on the CPI data, economists estimated that PCE inflation increased 0.4% in May, which would match April's gain and translate into an annual increase of 4.0%. PCE inflation advanced 3.8% in the 12 months through April. Estimates for May core PCE inflation ranged between 0.3% and 0.4% over the month. Underlying inflation was forecast to increase 3.3% year-on-year.

"If we don't see a moderation in energy prices soon, it will only be a matter of time before we see more visible spillovers into other goods and services categories and into inflation expectations," said Scott Anderson, chief U.S. economist at BMO Capital Markets. "The potential for future rate hikes is still very much on the table."