Surging US consumer inflation hits three-year high in key challenge for Trump

WASHINGTON – US consumer inflation surged to a fresh three-year high in May, with soaring energy prices caused by US President Donald Trump’s Iran war posing a key challenge to Republicans ahead of midterm elections.

The consumer price index (CPI) rose 4.2 per cent year on year, up from April’s 3.8 per cent figure, the US Bureau of Labor Statistics said on June 10.

It was the highest reading since April 2023, according to official data, but in line with analyst expectations.

The US-Israel war against Iran, launched in late February, has sent energy prices skyrocketing after Tehran retaliated by virtually closing the vital Strait of Hormuz, through which roughly a fifth of global oil and gas normally passes.

Trump has insisted that the price shock will be temporary and that a peace deal will be signed soon, but the soaring costs are a key issue for voters as they head to midterm elections in November.

Trump’s Republican Party will be aiming to maintain its control of both houses of Congress, but will face a stiff test as high prices batter US households.

Should Democratic lawmakers retake one or both houses, it will limit Trump’s ability to bulldoze policies through Congress as he has done throughout his second term.

‘Possible peak’

May’s consumer inflation data showed energy prices had risen 23.5 per cent over the same time in 2025, with petrol prices rising by 40.5 per cent.

Grocery prices also rose significantly for the second month in a row, up 2.7 per cent over a year ago.

Other price increases included the cost of medical care, personal care and recreation as well as airfares.

Americans have been dealing with years of higher-than-expected prices, with inflation remaining elevated long after the pandemic.

Prices have been fuelled by repeated shocks, including the Russian invasion of Ukraine, Trump’s tariffs and the war on Iran.

Analysts, however, said that petrol prices at the pump have recently stabilised, potentially indicating a favourable outlook for overall inflation.

“Higher energy prices again pushed up inflation last month, but we estimate that inflation has peaked and will trend lower in the second half of the year,” said Kathy Bostjancic, chief economist at Nationwide.

She added that this was assuming there was a “near-term resolution with Iran to reopen the Strait of Hormuz”.

Nancy Vanden Houten, lead US economist at Oxford Economics, agreed with that assessment, but warned that “inflation will be slow to decline”.

Core CPI inflation, which excludes volatile food and energy prices, came in at 2.9 per cent in May, up from 2.8 per cent the month before.

“For now, there appears to be little pass-through of higher energy cost onto core inflation, outside of airfare,” said Gregory Daco, chief economist at EY-Parthenon.

‘Wall of worry’

The US Federal Reserve has a long-term 2 per cent target for inflation, and the central bank’s key interest rate-setting committee will meet next week.

It will be new chairman Kevin Warsh’s first meeting since taking office in May, and he will be under pressure from Trump to reduce interest rates.

Markets expect the committee to keep rates steady at this meeting, but are now pricing in rate hikes for later in the year, spooking equity investors.

Before the war, markets had priced in interest rate cuts for later in the year, with expectations that inflation fuelled by Trump’s tariff policy would begin to fade.

The war, however, has complicated the outlook, with more Fed policymakers saying they were concerned about rising inflation, which the central bank would typically address by raising rates.

The Fed’s preferred inflation gauge, the Personal Consumption Expenditures prices index, also hit a three-year high in its last reading.

“The Fed will be in no position to cut rates if this continues,” said Chris Zaccarelli, chief investment officer for Northlight Asset Management.

“The stock market has been climbing a wall of worry and has been able to rally on stronger earnings and stable interest rates, but a rising rate environment is another thing altogether.” AFP