WASHINGTON (AP) — The Federal Reserve’s preferred inflation gauge rose to a new three-year high in May as gas prices peaked, a sign rising costs could pose political problems for President Trump as midterm elections near. The Commerce Department said Thursday that consumer prices rose 4.1% in May from a year earlier, the largest annual increase since April 2023. On a monthly basis, inflation was 0.4% last month, matching April’s increase and down from 0.7% in March. The increase was largely driven by more expensive gas, as well as pricier semiconductors and other computer equipment that are in high demand for the AI buildout. Rising prices have caused the inflation-fighters at the Federal Reserve to keep their key rate unchanged this year, a reversal from January when they had penciled in two cuts. Some economists forecast the central bank could lift rates this year instead.
New Fed chair Kevin Warsh last week underscored the central bank’s determination to drive inflation back to its 2% target, but he gave no sign of what steps the Fed might take. Some economists, however, now expect the central bank to increase rates this year. Those expectations have helped drive down share prices this week.
