Inflation has reached a 3-year high, with consumer prices jumping 4.2% in May compared to the same period last year. This surge in inflation has been driven in part by rising gas prices, which have been impacted by the Iran war. The annual increase is up from the 3.8% reading in April, and prices have risen 0.5% on a monthly basis.

Impact on the Economy

The inflation spike has significant implications for the economy, particularly with midterm elections approaching. The Federal Reserve, led by new Chair Kevin Warsh, is facing pressure to address the rising costs. Some economists worry that prices are still elevated in areas that should be unaffected by gas costs, such as dental care and motor vehicle repair.

Core inflation, which excludes the volatile food and energy categories, rose 0.2% in May from April. Gas prices have fallen this month, but they rose in May due to Iran’s closure of the Strait of Hormuz, which has choked off about a fifth of the world’s oil supply. Prices at the pump rose, on average, from about $4.04 in mid-April to $4.49 in mid-May, according to the Energy Information Administration.

Federal Reserve Response

The Federal Reserve is expected to raise interest rates in December, according to futures prices tracked by CME Fedwatch. The Fed’s next move is likely to be a hike rather than a cut, as officials aim to bring down inflation. Higher inflation has put the new Fed Chair, Kevin Warsh, in a difficult spot, as he advocated for rate cuts last year and was chosen by President Trump to replace Jerome Powell.

Original reporting: NBC10 Boston — read the source article.