U.S. inflation hits 3-year high as energy prices surge

A surge in energy prices, driven by an ongoing military conflict involving U.S., Israeli, and Iranian forces, pushed U.S. inflation to its highest level in three years in May, effectively erasing recent wage gains for American workers. Data released this week showed the Consumer Price Index rose 4.2% over the past year, the fastest annual pace since April 2023, while a separate measure of wholesale inflation hit 6.5%, its highest rate since November 2022.

The acceleration was concentrated in energy markets, with the Consumer Price Index rising 0.5% in May alone. Energy prices surged 3.9% for the month and 23.5% over the past year, accounting for more than 60% of the monthly increase. Officials and analysts directly linked the spike to disruptions in global oil shipments through the Strait of Hormuz, a critical transit route, following the outbreak of hostilities in February. Crude oil prices have traded near $90 per barrel.

The inflationary shock has reversed earlier progress on wages. After accounting for inflation, real average hourly earnings for production and nonsupervisory workers fell 0.3% from April to May and are now essentially flat compared to January 2025. While...