Inflation in the U.S. accelerated to 4.2% in May. The energy shock is driving prices to their highest level since…

U.S. inflation accelerated for the third consecutive month in May, reaching 4.2% year-over-year—the highest level since April 2023. The main culprit remains the energy shock triggered by the conflict with Iran, which is spilling over into the wallets of American households. Core inflation, however, surprised on the downside. What does this mean for investors?

Wednesday’s report from the U.S. Bureau of Labor Statistics (BLS) confirmed what markets had been fearing for several weeks. The Consumer Price Index (CPI), which measures how much everyday household expenses—from groceries to gasoline to rent—have risen in recent months, rose by 0.5% in May compared to April and by 4.2% year-over-year. This marks the third consecutive monthly acceleration, as year-over-year inflation stood at 3.3% in March and 3.8% in April. The United States is now further from the Fed’s 2% target than it has been in the past three years.

The May result was exactly in line with economists’ expectations. In fact,…