U.S. Bureau of Labor Statistics announced in June 2026 that the May CPI year-over-year rose to 4.2%, reaching a three-year high since April 2023, with a month-over-month increase of 0.5%; core CPI was 2.9% YoY and only 0.2% MoM, slightly below expectations.

The main reason is energy shocks—Middle East tensions pushing up oil prices, with energy index rising 3.9% month-over-month and 23.5% year-over-year in May, gasoline prices reaching $4.60 per gallon, with energy contributing over 60% of the overall CPI increase; food rose only 0.2% MoM, housing costs slowed to 0.3% MoM, and core inflation has not become completely out of control.

Policy and impact: Inflation is still far from the Federal Reserve’s 2% target, combined with strong non-farm payrolls (adding 172k jobs), market expectations for rate cuts have disappeared, and the probability of a 25 basis point rate hike this year has risen to about 43%. The Fed is expected to hold steady in June, with the "higher for longer" stance reinforced. After the data release, U.S. stocks initially fell over 1% but then narrowed losses, U.S. Treasury yields remained stable, the dollar edged higher, and gold briefly dipped before rebounding—core month-over-month inflation eased moderately, alleviating fears of aggressive rate hikes.

Risks: Real hourly wages have already turned negative YoY (lagging inflation by about 0.7%), eroding residents’ purchasing power; if oil prices stay high and pass through to core services, the Fed’s probability of restarting rate hikes will further increase, requiring close attention to whether subsequent inflation remains sticky and to geopolitical developments.