Inflation in the United States has surged to its highest level in three years, driven by rising energy costs created by the Iran war and disruptions to global supply chains.
WHAT HAPPENED: Inflation in the United States hit a three-year high in May, reaching over four percent. However, President Donald J. Trump told reporters “I love the inflation” on Wednesday, revealing that the U.S. has been “taking out” Iranian oil and predicting that it will drop “like a rock.” He also revealed on Truth Social that a “secret mission to support Oil Tankers and other Commercial Ships through the Strait of Hormuz” has resulted in “more than 100 MILLION Barrels of Oil making its way through the Strait, and into the Open Market,” potentially mitigating rising energy prices.
DETAIL: Inflation surged to 4.2 percent in May, an increase from 3.8 percent a month prior and the fastest increase in three years. The spike in inflation was primarily driven by increases in energy costs. The Consumer Price Index (CPI) has risen for the third consecutive month, with energy bills, including gas and electricity, nearly 25 percent higher than a year ago. The average price of a gallon of regular gasoline has surged to $4.15 from $2.98 in February. This followed the U.S. and Israeli strikes on Iran, which resulted in the closure of the Strait of Hormuz, a critical global shipping route for oil, gas, and fertilizer exports. In addition to rising energy costs, the cost of medical care, personal care, communication, plane tickets, and recreation has significantly increased, contributing to inflationary pressures.
KEY QUOTE: “I love it. I love the inflation. You know why? Because as soon as this war is over … Do you know we’ve been taking out millions of barrels of oil? Nobody knows it. You know who doesn’t know? Iran until right now. Late at night, with no lights. Because they don’t have any radar, because we blasted the crap out of it. We took it out. That’s why oil’s $85 a barrel… When the war is over? It’s coming down. It’s going to come down like a rock.” – President Trump
IMPACT: In response to higher inflation, the likelihood of the Federal Reserve raising interest rates to curtail spending increases. The current rate of inflation far exceeds the Federal Reserve’s long-term target of two percent. Adjustments in interest rates are likely to impact borrowing costs and consumer confidence.
FLASHBACK: In late April, according to the University of Michigan’s Consumer Sentiment Index, consumer sentiment crashed to a record low of 49.8, the lowest level since data collection began in 1978. The drop in consumer confidence was chalked up to the ongoing Iran war.