Consumer-price growth remains at three-year highs.

Energy costs continued to pinch Americans' wallets in May, keeping consumer-price growth at three-year highs. The U.S. Bureau of Labor Statistics said Wednesday that May's consumer price index (CPI), which measures the change in prices on a variety of consumer goods and services, rose by a seasonally adjusted 0.5% month-over-month—a slightly slower rate than April's 0.6% and in line with analysts' estimates. The headline year-over-year reading remained elevated, with the 4.2% growth in consumer prices also meeting estimates but hotter than the prior month's 3.8% and the highest such pace since May 2023. Related: 'Barnburner' May Jobs Report Puts Fed Rate Hike in Play "Core" CPI—a measure of inflation that excludes food and energy costs (factors that are more volatile than the other prices tracked by the Labor Department)—was a bit softer than expected on a month-over-month basis. Core inflation of 0.2% was both slower than April's 0.4% rate and estimates for 0.3%. But on a year-over-year basis, a core CPI increase of 2.9% was in line with estimates and a hair quicker than April's 2.8%. With core measures suggesting more limited price increases and much of the upside coming from oil directly (energy) or indirectly (airfares), today’s release suggests that inflationary pressures stemming from the oil price shock have remained manageable for the U.S. economy so far," says Josh Jamner, Senior Investment Strategy Analyst at ClearBridge Investments. Here's a quick look at May's key CPI figures: MoM CPI: +0.5% (estimate: +0.5%) YoY CPI: +4.2% (estimate: +4.2%) MoM Core CPI: +0.2% (estimate: +0.3%) YoY Core CPI: +2.9% (estimate: +2.9%) "While the recent spike in both headline and core inflation is meaningful and a headwind for the economy and more cyclical sectors, tailwinds from the AI investment cycle, potential benefits from the Big Beautiful Bill, and the lagged impact of Fed rate cuts are all still providing meaningful support," says Tim Urbanowicz, Chief Investment Strategist, Innovator ETFs from Goldman Sachs Asset Management. “If the Iran conflict drags on and inflationary pressures continue to build, there could come a point where that balance shifts, but we don’t see that today.” Invest With CIBC CIBC Investor's Edge lets you trade U.S. and Canadian stocks and ETFs, options, mutual funds, and bonds through registered accounts like FHSAs, TFSAs, RRSPs, and RESPs, as well as non-registered accounts. Sign up with our link today and use promo code EDGE2026 to get 200 free trades with CIBC Investor's Edge. The continued closure of the Strait of Hormuz caused the energy index to rocket another 3.9% month-over-month in May—quicker than April's 3.8% pace—and is now higher by more than 23% year-over-year. Gas prices are now 40% higher than they were a year ago, accelerating to 7% growth in May after rising 5.4% in April. Energy prices also bled into the airline fares index, which rose 2.7% last month. Higher costs for gas and fuel oil overshadowed easing inflation in other categories. Food-price growth slowed to just 0.2% MoM after increasing by 0.5% in April. Shelter costs, which are still up 3.4% year-over-year, decelerated from 0.6% monthly growth in April to just 0.3% in May. Utility costs hit the brakes, rising by just 0.4% MoM last month after jumping 1.6% in April. Related: 15 Best Long-Term Stocks to Buy and Hold Forever Meanwhile, rising prices in a few categories actually sparked optimism about the economy. For instance, prices for food away from home (+0.3% MoM) outpaced prices for food at home (+0.1%), which Jamner called a "sign of strength from the U.S. consumer given the discretionary nature of eating out." "Outside of energy, inflation was driven by higher airline and recreation costs," adds Scott Helfstein, Head of Investment Strategy at Global X ETFs. "While that is frustrating for consumers, it is also a sign of a healthy economy. Airports and sporting events are packed. Wages continue to rise, though gains are slowing, and people continue to spend. That is a good formula." Market Still Eyes Rate Hike in 2026 The report had little immediate impact on the market's expectations for interest rates. The CME FedWatch Tool, which uses trading in federal-funds futures to determine Wall Street's expectations for future Federal Reserve actions, shows a 98% chance that the target range for the federal funds rate will stay at its current 3.50%-to-3.75% range at the conclusion of the next Federal Open Market Committee (FOMC) meeting, scheduled for June 16-17. That's virtually unchanged from yesterday. Meanwhile, the market is pricing in a nearly 70% chance of at least one rate hike by the end of 2026. "The different signals from different inflation metrics will be on display this month," says Andrew Hollenhorst, U.S. Chief Economist at Citi Research, who predicted a 0.22% MoM rise in core CPI but a much stronger 0.37% MoM jump in core personal consumption expenditures (PCE), which comes out later this month. "In our view, of the two CPI is currently the more accurate metric, in part because AI-linked prices are overrepresented in PCE. In contrast to the popular market narrative, we think underlying inflation is running around 2.5% and has been on a declining trend." This article will be updated. What If I Need Help Picking Stocks? Motley Fool Stock Advisor is a stock picking service that espouses our favorite, plain-vanilla trading style: buy-and-hold. Fool analysts provide recommendations for both "Steady Eddies" and potential high-flying stocks with sound fundamentals—exactly the combination of holdings you want to generate strong performance without risking extremely high volatility. Importantly, Stock Advisor doesn't just give you a list of tickers and call it a day—it also provides investment rationales and research for each pick to help educate you before you buy. For more than two decades, Stock Advisor stock picks have performed exceptionally well. Indeed, the service has greatly outperformed the S&P 500 since launching in 2022. Sign up for Stock Advisor today and enjoy a discounted rate for the first year, as well as a 30-day membership-fee-back period. Read More From Young and the Invested

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