WASHINGTON (AP) — Rising gas prices pushed inflation to its highest level in three years last month, a headache for the Federal Reserve and a potential political challenge for the Trump administration as midterm elections near.
Consumer prices rose 4.2% in May from a year earlier, the Labor Department said Wednesday, up from 3.8% in April and the third straight monthly increase. On a monthly basis, prices rose 0.5% last month, after big gains of 0.6% in April and 0.9% in March.
Prices have now risen faster than wages for several months, pressuring many Americans’ finances and causing consumers to take a decidedly dim view of the economy. Families are dipping into savings to maintain their spending, and more people are falling behind on their credit card bills. Large retailers say they have also noticed changes in customer behavior, like buying smaller amounts of gas during visits to the pump.
Inflation is now well above the Federal Reserve’s 2% target, which it has surpassed for more than five years. New Fed chair Kevin Warsh will preside over his first policy meeting next week, when the central bank is expected to keep its key interest rate unchanged. But the Fed is also likely to change the statement it issues after each meeting to remove a suggestion that its next move could be to lower rates. With inflation proving stubborn, financial markets expect the Fed could instead raise rates by the end of the year.