Key Takeaways

• CPI at 3-year high: Annual U.S. consumer inflation rose to 4.2% in May — the highest reading since 2023.
• In line with expectations: The print matched market forecasts of 4.2%.
• Energy shock the driver: Iran war-driven fuel costs continue to be the primary force pushing prices higher.
• Fed rate hike bets reinforced: The elevated reading keeps pressure on the Federal Reserve ahead of its June 16-17 policy meeting.
• Markets watching closely: With over 70% of traders already pricing a December rate hike, the on-target print is unlikely to dramatically shift the calculus — but confirms the inflationary trend.

Annual inflation in the United States, as measured by the change in the Consumer Price Index, rose to 4.2% in May — its highest level in three years — according to data released on Wednesday. The reading came in line with market expectations.