Key inflation gauge jumps to 3-year high in latest sign of affordability challenges

By — Christopher Rugaber, Associated Press Christopher Rugaber, Associated Press Leave your feedback Share Copy URL https://www.pbs.org/newshour/economy/key-inflation-gauge-jumps-to-3-year-high-in-latest-sign-of-affordability-challenges Email Facebook Twitter LinkedIn Pinterest Tumblr Share on Facebook Share on Twitter Key inflation gauge jumps to 3-year high in latest sign of affordability challenges Economy Jun 25, 2026 10:26 AM EDT WASHINGTON (AP) — The Federal Reserve's preferred inflation gauge rose to a new three-year high in May as gas prices peaked, a sign rising costs could pose political problems for President Trump as midterm elections near. The Commerce Department said Thursday that consumer prices rose 4.1% in May from a year earlier, the largest annual increase since April 2023. On a monthly basis, inflation was 0.4% last month, matching April's increase and down from 0.7% in March. Educate your inbox Subscribe to Here’s the Deal, our politics newsletter for analysis you won’t find anywhere else. The increase was largely driven by more expensive gas, as well as pricier semiconductors and other computer equipment that are in high demand for the AI buildout. Rising prices have caused the inflation-fighters at the Federal Reserve to keep their key rate unchanged this year, a reversal from January when they had penciled in two cuts. Some economists forecast the central bank could lift rates this year instead. New Fed chair Kevin Warsh last week underscored the central bank's determination to drive inflation back to its 2% target, but he gave no sign of what steps the Fed might take. Some economists, however, now expect the central bank to increase rates this year. Those expectations have helped drive down share prices this week. READ MORE: Trump's economic approval rating hits new low, poll finds Oil and gas prices have fallen substantially since Trump agreed to a peace deal with Iran, but the conflict lifted gas prices to nearly $4.50 a gallon on average nationwide last month. They have since fallen back to $3.92 as of Thursday, according to AAA. Excluding the volatile energy and food categories, core prices rose 3.4% in May compared with a year earlier, up from 3.3% in April and the largest increase since October 2023. On a monthly basis, they rose 0.3% from April to May, the same as the previous month. A free press is a cornerstone of a healthy democracy. Support trusted journalism and civil dialogue. Donate now