Inflation, as measured by the Consumer Price Index, is expected to run above 4% for the first time in three years because of the Iran war’s oil price shock. This increase is largely driven by fast-rising gas prices, which are expected to have an outsized effect on overall inflation in May.

Economic Impact

Economists expect that inflation rose 0.5% in May and 4.2% from a year ago, according to FactSet estimates. This would put the three-month average at just under 0.7%, the fastest since the April to June 2022 period. The latest inflation shock is adding another layer of fast-rising prices, with common goods and services becoming significantly more expensive than they were before the pandemic.

Affordability pressures are building, and Americans are having a harder time keeping up. Fast-rising prices are already outstripping Americans’ paychecks, and that gap is widening. If CPI rises 4.2% in May, it will mean that real (inflation-adjusted) wages are declining at an annual rate of 0.8%.

The ripple effects from the war-driven energy price shock could become even more evident in May’s data, although it’s expected to be a slow boil: Categories such as airfares, transportation, food, and apparel could see further increases. In April, prices of fruits and vegetables, which are often transported by refrigerated diesel trucks, rose by 2.3%, the highest monthly increase for that category since 2010.

Original reporting: KTVZ (Central Oregon) — read the source article.