Consumer and wholesale prices are accelerating as the war with Iran removes large volumes of oil from the global market. The producer price index advanced 1.1% in May, driven mainly by energy costs. That pushed the 12-month wholesale inflation rate to 6.5%, the highest level since late 2022. Excluding food and energy, core wholesale prices grew 0.4%, showing how closely the current inflation burden is tied to fuel.
On the consumer side, annual inflation reached 4.2%, a three-year high. That gives savers another reason to move cash from traditional accounts yielding less than half a percent into other accounts to preserve purchasing power. While domestic gasoline prices dropped by roughly 37 cents a gallon over the last month, the energy shock continues to ripple through the economy as businesses absorb higher fuel expenses.
Supply shortages and rates
The conflict has disrupted global energy supplies and shifted market expectations for borrowing costs:
- The global oil market is now missing more than a billion barrels of supply due to the ongoing hostilities.
- Yields on 10-year government bonds climbed above 4.5%.
- Investors now price in a 67% probability that the Federal Reserve will raise interest rates before the end of the year.
Despite the rising cost of living and shifting rate expectations, President Donald Trump has publicly dismissed concerns about the domestic economic toll. In an Oval Office appearance after the consumer inflation reports, the president said he loved the inflation. The administration is leaning on the argument that fuel prices and broader inflation metrics will drop once the military conflict ends and energy through the Strait of Hormuz flows freely again. Currently, less than a quarter of Americans approve of how the president is managing cost-of-living issues.
