US consumer prices increase as expected in May

WASHINGTON - U.S. consumer inflation increased at its fastest pace in three years in May as the Middle East conflict raised the price of gasoline and other energy products, giving more ammunition for the Federal Reserve to keep interest rates unchanged into 2027.

The Consumer Price Index increased 4.2% in the 12 months through May, the largest gain since April 2023, the Labor Department’s Bureau of Labor Statistics said on Wednesday. The CPI advanced 3.8% year-on-year in April. Prices increased 0.5% on a monthly basis after climbing 0.6% in April.

Economists polled by Reuters had forecast the CPI increasing 4.2% year-on-year and gaining 0.5% on a monthly basis.

The third straight month of strong increases in the CPI highlighted mounting pressure on households, as evidence suggests more consumers are dipping into savings to finance their spending. Inflation outpaced wage growth for a second consecutive month, which could weigh on overall economic growth.

The soaring cost of living is a political liability for President Donald Trump and his Republican Party, seeking to retain control of Congress in the midterm elections in November.

Trump won the 2024 presidential election in large part because of his promise to lower inflation, but has seen his approval rating tumble as frustration mounts over his handling of the economy. 

Trump on Wednesday appeared to embrace the new numbers, telling reporters that he “loved” inflation and reiterating his belief that prices will fall as soon as the Iran war ends.

Asked about government data showing consumer inflation increased at its fastest pace in three years in May, and whether it could hobble his fellow Republicans just months ahead of November’s midterm election, Trump said: “I love the inflation.”

The president then explained how he greenlit a plan to secretly move oil tankers through the Strait of Hormuz over concerns of higher costs and increasing inflation. “It was worth it to me,” Trump said about his calculus and calling the operation a success. 

“When it’s over, you will see oil drop to where it was before,” Trump said of the larger war. “It’s coming down. It’s going to come down like a rock.”

Excluding the volatile food and energy components, core CPI increased 2.9% year-on-year in May after rising 2.8% in April. The so-called core CPI gained 0.2% on a monthly basis after rising 0.4% in April. 

The U.S. central bank tracks the Personal Consumption Expenditures Price Index for its 2% inflation target. All inflation measures are running well above the Fed’s target.

The national average gasoline price increased 8.8% in May to $4.60 a gallon, data from the U.S. Energy Information Administration showed. At one point, gasoline prices had jumped by more than 50% since the U.S. and Israel attacked Iran at the end of February. Prices have retreated in recent weeks amid a ceasefire, leaving some economists cautiously hopeful that May could mark the peak in the CPI. 

The report followed news last week that the economy posted a third successive month of above-expectations job growth in May. The unemployment rate remained at 4.3% for a third consecutive month. Though financial markets have started pricing in a rate hike, economists continued to believe the bar remained high for the central bank to tighten monetary policy. 

May budget deficit shrinks; customs collections negative due to tariff refunds

The U.S. budget deficit for May fell $23 billion, or 7%, to $293 billion due largely to prior-year calendar shifts in benefit payments as both outlays and receipts fell, with the latter taking a big hit from refunds of Donald Trump’s emergency tariffs, the Treasury Department said on Wednesday.

But taking into account calendar shifts of some June 2025 payments into May that year, the Treasury said the adjusted May budget deficit at $293 billion would be an increase of $71 billion or 32% from the prior year.

Customs duty refunds totaled $21.97 billion in May against gross customs collections of $21.93 billion, making for net customs outflows of $42 million for the month, the Treasury said. Net customs receipts for May 2025 totaled $22.17 billion, reflecting the first month of Trump’s global tariffs imposed under the International Emergency Economic Powers Act.

Those duties were declared illegal by the U.S. Supreme Court in February, and the U.S. Customs and Border Protection agency in May began the first refunds of some $166 billion collected from IEEPA-based tariffs. 

Customs receipts have become a significant source of monthly Treasury receipts over the past year, reaching a peak of $31.3 billion in October 2025, but more recently in the low $20 billion range. The Trump administration is proposing to rebuild its broad tariffs under different legal authorities, including duties related to the weak enforcement of anti-forced labor laws of 10% or 12.5% on 60 major trading partners.

Fiscal year-to-date gross customs receipts totaled $220.7 billion, with refunds of $32.1 billion, up from year-earlier gross receipts of $86.1 billion and refunds of $4.75 billion. 

Total receipts for May fell $36 billion, or 10%, to $336 billion compared to May 2025, while outlays fell $59 billion, or 9%, to $628 billion.

May outlays were boosted by a $40 billion, or 44%, jump in Treasury debt interest payments to a record $133 billion.

The budget deficit for the first eight months of the fiscal year 2026, starting October 1, totaled $1.246 trillion, a decline of $118 billion or 9% on an unadjusted basis. On an adjusted basis, the year-to-date deficit would have declined by just $24 billion, or 2% from the prior period.

Fiscal year-to-date receipts rose $174 billion, or 5%, to $3.656 trillion, while outlays were up $56 billion, or 1%, to $4.902 trillion. Both figures were records for the year-to-date period, a Treasury official said.

Bureau of Labor Statistics nominee does not believe data were faked

Brett Matsumoto, Trump’s nominee to head the U.S. Bureau of Labor Statistics, said on Wednesday he did not believe the agency’s data had been fabricated, countering Trump’s accusation that the previous BLS commissioner had issued fake job numbers.

Matsumoto, an economist who has worked at the BLS since 2015 but is on leave from the economic data agency to work at the White House’s Council of Economic Advisers, said at his confirmation hearing before the U.S. Senate Health, Education, Labor and Pensions Committee that he has faith in the work performed by the career staff who collect and process the data and would ensure that their output is what is published by the agency.

He also said he would work to address technical issues that have undercut the quality of BLS data in recent years but did not echo Trump’s unfounded assertions that agency output was being manipulated for political purposes.

Trump fired the agency’s previous commissioner, Erika McEntarfer, an appointee of former President Joe Biden, last August following the release of a monthly employment report that included historically large revisions to previously reported figures on job creation.

The president initially picked conservative economist E.J. Antoni to head the agency but later withdrew the nomination.

Asked whether he ever believed that the jobs report or other data were being faked by the agency, Matsumoto said: “So I believe there are technical reasons that could explain perhaps these larger revisions, but no, I did not.”

BLS produces several of the most critical scorecards on the health of the U.S. economy - including benchmark monthly reports on inflation and the job market - that are among the most closely watched reports in the world.

Matsumoto declined to comment on Trump’s specific allegation about faked BLS data, saying: “The president’s statements speak for themselves, and I’m not going to comment on them.”

“I do agree that fulfilling the mission of the BLS to accurately measure this data does require independence from political interference, and if confirmed, I fully commit to maintaining the integrity and independence of the BLS,” Matsumoto said earlier in the hearing.

If confirmed for the BLS job, Matsumoto would helm an agency that has struggled with data-quality lapses arising from poor response rates to its benchmark surveys as well as collection and processing problems that in part arise from chronic understaffing.

Asked about what practical measures he would take to ensure the agency remains apolitical, Matsumoto said, “I would be the sole political appointee at the BLS. If confirmed, it is important that decisions not be made by me alone on these matters, that it come from the career staff with the expertise.”

Copyright Reuters or USA Today Network via Reuters Connect.

This story was originally published June 10, 2026 at 7:38 AM.