US inflation rises to 4.2% in May, driven by higher energy prices

US inflation accelerated in May, supported by rising energy costs, according to data released on Wednesday, marking the largest annual increase in three years.

The US Consumer Price Index (CPI) rose 4.2% year-over-year in May, in line with market expectations and reaching its highest level in three years.

On a seasonally adjusted monthly basis, the index increased 0.5% from the previous month, also matching Dow Jones estimates.

Core inflation, which excludes the more volatile food and energy categories, showed some moderation. It rose 0.2% on a monthly basis, below expectations for a 0.3% increase.

On an annual basis, core inflation came in at 2.9%, matching analysts’ forecasts but remaining above the Federal Reserve’s 2% target.

The data suggests inflationary pressures remain present in the US economy, particularly as higher energy prices linked to geopolitical tensions in the Middle East continue to feed into broader price trends. This could encourage the Federal Reserve to maintain a restrictive monetary policy stance for longer.

Following the release, US stock futures remained in negative territory, while Treasury yields were little changed, reflecting continued investor caution regarding the outlook for interest rates and US monetary policy.