Nicolai Haugsted
The gas prices are not the biggest concern, new report claims.
Pressure on household budgets appears to be intensifying again across the United States, with economists expecting a fresh jump in inflation driven largely by higher energy costs.
New government data due this week is forecast to show that consumer prices accelerated in May, extending a trend that has become increasingly difficult for both policymakers and the White House to ignore.
Inflation Expected to Reach Three-Year High
Economists surveyed by Reuters expect annual inflation to have climbed to 4.2 percent in May, up from 3.8 percent in April.
If confirmed, that would mark the fastest pace of consumer price growth since spring 2023.
Monthly inflation is also projected to remain elevated, reflecting the impact of higher fuel costs following months of instability in the Middle East.
A sharp rise in oil prices after military action involving the United States, Israel and Iran pushed gasoline costs significantly higher earlier this year, with average prices reaching $4.60 per gallon during May.
Paychecks Losing Ground
Growing concern among economists centers on the gap between inflation and wage growth.
For a second consecutive month, consumer prices are expected to have increased faster than earnings, reducing the purchasing power of many households.
Joseph Brusuelas, chief economist at RSM, warned that Americans are beginning to feel the effects.
“The top-line increase in inflation will outpace wage growth for the second consecutive month.”
Brusuelas said that trend effectively means workers are losing spending power in real terms.
“What that means is Americans are seeing their paycheck decline in real terms.”
According to economists, prolonged pressure on household finances could lead consumers to cut back spending later in the year, creating additional challenges for economic growth.
Federal Reserve Faces Difficult Choices
Latest inflation forecasts are likely to strengthen expectations that the Federal Reserve will keep interest rates unchanged for the foreseeable future.
Financial markets have even begun considering the possibility of another rate increase if price pressures spread beyond energy and begin affecting broader parts of the economy.
Core inflation, which excludes food and energy prices, is also expected to edge higher in May.
James Knightley, chief international economist at ING, said policymakers will be watching closely for signs that rising energy costs are filtering into other sectors.
“If the core was to show some signs of pass through, higher energy costs being reflected into other categories as well, then that would be the story that would trigger the Fed rate-hike narrative.”
Political Challenge for Trump
Inflation remains one of the most politically sensitive issues facing President Donald Trump.
Trump returned to office after campaigning heavily on promises to reduce living costs and bring inflation under control.
Recent polling, however, has shown growing dissatisfaction with the administration’s handling of the economy as households continue to grapple with elevated prices.
Despite inflation concerns, the broader labor market has remained relatively stable. Employment growth exceeded expectations again in May, while the unemployment rate held steady at 4.3 percent.
Some economists believe easing oil prices following the ceasefire in the Middle East could mean inflation is approaching a temporary peak.
Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets, said recent trends offer cautious grounds for optimism.
“There is a good chance that the year-over-year advance in headline inflation peaks for the moment in May.”
Future developments in the Middle East, however, are expected to remain a major factor in determining where prices head next.
