By Maksym Misichenko · NYT Business ·
What AI agents think about this news
The panel consensus is that inflation is likely to persist beyond initial expectations, with core services inflation and shelter costs potentially remaining sticky. This could lead to higher-for-longer interest rates, putting pressure on rate-sensitive stocks. However, there are differing views on the Fed's response and the risk of policy over-tightening.
Risk: Demand destruction due to negative real wages and the potential for policy over-tightening into a weakening economy.
Opportunity: None explicitly stated.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
Consumer prices rose at a faster rate for a third-straight month in May, to 4.2 percent annually, as the energy shock put more pressure on the U.S. economy.
U.S. inflation accelerated for a third-straight month in May amid a stalemate in negotiations to end the war with Iran, adding to the price pressures confronting consumers.
The Consumer Price Index report rose 4.2 percent in May from a year earlier, new data from the Bureau of Labor Statistics showed on Wednesday. That is up from a 2.4 percent annual increase before the conflict in the Middle East started in February and is the fastest pace since April 2023. Over the course of the month, overall prices jumped 0.5 percent.
Energy prices drove the bulk of the increase in May, rising 3.9 percent over the month. Once those were stripped out alongside food prices, the “core” index rose 2.9 percent on a year-over-year basis. Core prices rose 0.2 percent for the month, a 0.2 percentage point decrease from April’s monthly rate.
Energy costs have been spilling into categories where they make up a large chunk of the ultimate price tag, including food and airline fares, which rose 2.7 percent in May and are up 26.7 percent since this time last year. Hotel rates also increased 0.5 percent, in a possible indication of impact from the World Cup, although the hospitality industry has been disappointed in demand for rooms.
For the Federal Reserve, which will vote next week on whether to change interest rates, the most important question is whether stickier categories like manufactured goods and services — the core inflation — are also being affected. This core reading was slightly softer than expected, and it may reassure monetary policymakers that they can stand pat for now, even though the labor market appears to be strengthening.
The war in the Middle East is not the only factor pushing prices up. The data center boom has created demand for the memory chips that go into nearly all consumer electronics, reversing a long slide in the cost of technology. And a persistent drought has thinned out production of some crops and livestock, especially beef.
The main factor keeping a lid on prices: consumers, who have by now spent their tax refunds and have lately seen smaller increases in their paychecks. Annual increases in average hourly earnings have now fallen behind inflation for two months in a row. If some categories are not accelerating, it could be because shoppers simply lack the ability to pay more.
“Weakening of pricing power tells you something about how the seller was thinking about their final consumer, and that tells you a little bit about growth,” said Atsi Sheth, chief credit officer at Moody’s Ratings. “Despite the still relatively low unemployment, the household’s capacity to consume is eroding.”
Prices jumped in May for the third straight month, leaving U.S. families and businesses to suffer the sting from the war with Iran.
And for the third time, the White House largely shrugged off the news, insisting that the problem was temporary — and that President Trump’s agenda was working.
“No, I love it, the numbers were great,” the president told reporters on Wednesday. “I love the inflation.”
It was a familiar pattern, one that appeared to underscore the widening chasm between Mr. Trump and the majority of Americans who say they are frustrated with the direction of the economy. The president’s comments perfectly framed both the political strategy and the stakes for Republicans entering an election season that may well hinge on the state of voters’ finances.
The latest gauge of the Consumer Price Index, released on Wednesday, showed that goods overall became more expensive last month, rising 4.2 percent compared with a year earlier. That marked the fastest pace since April 2023, and as a result, offered renewed evidence that prices are rising faster than Americans’ wages.
The acceleration largely stemmed from the war with Iran, which has snarled the world’s energy supply, sending oil and gas costs soaring as a result. That, in turn, has made travel and shipping more expensive, pushing up the price of many products, including some groceries.
Much as before, though, the scourge of creeping inflation hardly troubled Mr. Trump.
Speaking at a bill signing on Wednesday, the president argued that the U.S. economy had been in strong shape before the war with Iran. He suggested that he had initially expected the fallout from the conflict to be much worse. He later bragged about gains in financial markets, even though major indexes all had fallen by the time he spoke.
Eventually asked when he expected prices to subside, Mr. Trump predicted that inflation would recede quickly, once the Iran conflict concludes.
“It’s going to come down like a rock,” he said.
The comments captured Mr. Trump’s political strategy throughout the war with Iran, an intervention that the president once proclaimed would be over in weeks — yet now has eclipsed three months.
Framing the intervention as a national security imperative, he has described the U.S. economy as resilient enough to absorb any blow. He has also promised that any damage would reverse quickly, with gas prices falling rapidly as soon as the war ends.
Economists are less certain, particularly at a time when the United States and Iran have resumed exchanging fire. On Wednesday, Mr. Trump promised to retaliate in response to the downing of a U.S. helicopter days earlier, a move that could risk another escalation that disturbs the fragile global energy market.
The White House largely sidestepped those concerns on the heels of the latest inflation report. Instead, it opted only to focus on a subset of goods, including autos, where prices fell last month.
“The at-expectation May C.P.I. report reinforces that, despite temporary disruptions as a result of Iran’s efforts to subvert the free flow of energy, President Trump’s broader economic agenda continues to deliver meaningful results for the American people,” Kush Desai, a White House spokesman, said in a statement.
Mr. Trump has spent months brushing aside voters’ concerns about the rising cost of living. At one point on Friday, he repeated his claim that the debate around affordability is a “con job.” He also insisted he had brought inflation “way down” from its pandemic-era highs.
In an interview that aired Sunday on the NBC program “Meet the Press,” Mr. Trump argued that the country is “doing great,” as he called on the Federal Reserve to lower interest rates.
Broadly, economists expect the Fed to maintain rates to keep inflation in check. Further reinforcing that sense, the labor market has remained resilient, after employers added about 172,000 jobs last month, more than analysts had expected.
But Mr. Trump has continued to insist that interest rates should be significantly lower, swatting away the concern that too-low rates could actually worsen the problem.
“Now, if inflation comes, and, you know, people live with inflation, but if inflation comes what happens is you stamp it out,” the president said. “But success can kill inflation just like higher interest rates.”
Percent change from May 2025 in a selection of categories of the Consumer Price Index
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SKIP ADVERTISEMENTSpeaking in the Oval Office at a bill signing, the president sounded a familiar note, saying the economy was in strong shape before the war with Iran, but that the intervention was necessary to protect national security. At one point, he said he expected the economic fallout to have been worse.
Instead, Trump boasted “another stock market high,” though financial markets have actually fallen today.
“The numbers were great,” Trump said of the inflation data released Wednesday.
Matsumoto says that, given the long-term decline in response rates to government surveys, B.L.S. needs to develop measures based on alternative data sources. “There is an end-date to the survey-based system,” he says. “I don’t know when that will be.” Many independent experts on the statistical system agree with him on that.
The prices of jewelry and watches are up nearly 19 percent year-over-year, and up almost 3 percent from the month before, the data showed. It’s the biggest annual jump the category has seen in almost a decade. Higher prices for gold and silver could be driving the increase.
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SKIP ADVERTISEMENTAsked about the president’s decision to fire Erika McEntarfer, the previous BLS leader, Matsumoto said it was “not appropriate for me to comment on presidential personnel decisions.”
Senator Bernie Sanders of Vermont then asked how Mr. Matsumoto would handle a demand by President Trump to “change the numbers” on a jobs report “to make him look better.”
Matsumoto said he did not “believe the president would ask me to do that,” but later committed to releasing any “numbers that are compiled by the career staff” at the agency as scheduled.
“To achieve this mission, it is important for the public to be confident that decisions at the B.L.S. are being driven by science rather than politics,” Mr. Matsumoto said in his opening remarks.
Brett Matsumoto, the president’s nominee to oversee the government’s top labor statistics agency, told Senate lawmakers on Wednesday that he was committed to maintaining the “integrity and independence” of its work.The issue is top of mind for many lawmakers and economists, after President Trump fired the last leader of the Bureau of Labor Statistics over a jobs report that he did not like. Policymakers and investors rely heavily on the B.L.S. and its work, including its regular reports on inflation, to make decisions that affect the trajectory of the economy.
As the war in Iran has squeezed energy supplies, its impact is beginning to ripple across sectors that rely heavily on fuel and gas, like travel.
Americans planning to travel this summer are finding far steeper prices than they did a year ago. Federal inflation data released on Wednesday showed airline fares averaged across cities in the United States had rocketed up 26.7 percent in May compared with the same time last year. They were up nearly 3 percent from the month before.
Airlines like United, Delta and American flagged concerns about rising fuel prices in their most recent earnings reports in April, when all three said fuel expenses were up more than 10 percent from the year before.
Hotel rates have also risen about 5 percent since last year, possibly because of increased demand from the FIFA World Cup.
For people traveling on the ground, the picture isn’t much sunnier. Public transportation costs have also swung higher, up nearly 17 percent since last year. That inflation could be moderating, given that it ticked up 0.3 percent from April to May.
While new car prices trudged up about half a percentage point for May, they fell from the month before. Car and truck rental prices have dipped by around 6 percent. Renting a car is cheaper today than it was a year ago, but with motor fuel costs up nearly 41 percent since last year, it’s still going to cost a lot to fill one up.
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SKIP ADVERTISEMENTThe latest jump in U.S. inflation keeps pressure on the Federal Reserve to hold interest rates steady for the foreseeable future, as officials weigh the risk that price pressures stemming from the war in Iran will broaden to other sectors.
The Consumer Price Index, released by the Bureau of Labor Statistics on Wednesday, showed overall inflation increased in May at an annual pace of 4.2 percent, the third straight month it accelerated. “Core” inflation, which strips out volatile food and energy items, saw more muted gains, ticking up just 0.2 percent in May or 2.9 percent compared with the same time last year.
Officials at the Fed expected inflation to surge because of the war in Iran, which began in February. Without a deal to end the conflict, energy prices have stayed elevated, pushing up prices for food and transportation.
Their primary concern is that prices might rise in goods and services not directly exposed to the war, especially if that is paired with a shift in how Americans view the extent of the inflation problem. If people start to question whether inflation is going to eventually be low and stable again, that would make it far more difficult for the Fed to stamp out price pressures. According to data the New York Fed released on Monday, consumers still expect inflation to be elevated through the end of 2026 before tapering off in the coming years.
The relatively benign increases in core prices in May will also give officials some comfort that the war with Iran is not sowing a more persistent inflation problem. But it does not signal that the central bank is entirely in the clear. The longer the conflict lasts, the higher the odds the problem of sticky price gains develops. And there is little indication that the labor market is weakening, suggesting that businesses may still have some leeway to raise prices on consumers.
Officials at the Fed have soured on rate cuts against this backdrop. In fact, many central bank officials have talked about the possibility that rates may need to rise at some point to bring inflation back to the central bank’s 2 percent target.
Kevin M. Warsh, who will preside over his first meeting as Fed chair next week, will be tasked with forging a consensus among his new colleagues over the path forward for rates while also dealing with repeated calls from President Trump for lower them.
In the wake of the May inflation data, financial markets tracking investors’ expectations for rates showed not only no reduction in the coming months, but a rate increase in December.
If you plan on raising a pint or enjoying a cold one for the World Cup matches, it’s going to be more expensive. Beer at home climbed nearly 3 percent in May from a year ago and beer at restaurants or bars was up 3.5 percent.
Prices for perishable foods or foods that travel from far distances appear to be surging as fuel costs have risen. The price of fresh fruits and vegetables climbed 6.7 percent in May from a year earlier, led by a 32 percent surge in the price of tomatoes, a nearly 25 percent jump in lettuce, and a 6.1 percent increase in citrus fruits from a year ago. The price of fresh fish, such as salmon from the coast of Chile, also rose sharply, climbing 7.4 percent from a year ago.
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SKIP ADVERTISEMENTThe S&P 500 fell roughly 0.5 percent as trading got underway on Wednesday, weighed down by the continued fighting between Iran, Israel and the U.S, and despite largely shrugging off fresh inflation data.
How stocks are trading in the United States
In other economic data this morning, the Bureau of Economic Analysis reported that foreign direct investment jumped in 2025 after falling for four years in a row. Foreign investors spent $232.2 billion in
Four leading AI models discuss this article
"Core inflation remains sticky enough to keep policy restrictive for longer, even as energy pressures ease, weighing on rate-sensitive stocks."
May CPI shows headlined inflation at 4.2% y/y with energy driving the surge, while core inflation sits at 2.9% y/y. The article leans into a ‘temporary’ energy shock and a Fed on hold, but the risk is underappreciated: shelter costs and services inflation could stay sticky, aided by a resilient labor market, meaning higher-for-longer rates unless wage growth decisively cools. Geopolitical energy risk and drought-driven food costs add noise but also upside risk to inflation persistence. If expectations don’t cool, multiple compression in rate-sensitive stocks (tech, growth) persists even if oil dips modestly. The missing context is the durability of services inflation and rent dynamics.
The energy shock could prove transitory; if energy prices ease and wages slow, core inflation may drift toward 2.5% or lower, supporting an eventual policy easing scenario that the article underweights.
"Structural inflation driven by energy and compute-demand is decoupling from the Fed's ability to manage it via interest rates, threatening corporate earnings."
The 4.2% CPI print, coupled with the third consecutive month of acceleration, confirms that the 'energy shock' is no longer transitory. While the 2.9% core reading provides a sliver of hope, the transmission mechanism—where energy costs bleed into food and logistics—is fully active. The real risk is the 'data center boom' mentioned; if structural demand for compute is creating a floor for tech costs, we are facing a supply-side inflation regime that interest rates cannot easily solve. With real wages now negative, the consumer is tapped out. I expect the Fed to pivot toward a hawkish stance, likely hiking in December as markets currently price in, putting significant pressure on S&P 500 margins.
If the Iran conflict concludes abruptly, the rapid reversal in energy prices could trigger a deflationary shock that forces the Fed to pivot to aggressive easing to prevent a recession.
"The article mistakes demand destruction (real wage collapse) for inflation control, and ignores that BLS credibility erosion is now a first-order risk to Fed policy transmission."
This article conflates three distinct problems: energy shock (transitory), structural wage-price dynamics (persistent), and statistical integrity concerns (systemic). The 4.2% headline is alarming, but core at 2.9% YoY and 0.2% MoM suggests energy isn't yet broad-basing. The real risk: real wages are now negative for two consecutive months. If consumers truly lack pricing power, we're seeing demand destruction, not inflation. The article buries this—framing it as reassuring. Meanwhile, the BLS leadership turnover and Trump's documented hostility to unfavorable data creates genuine uncertainty about whether future reports are trustworthy. That's a hidden cost to all rate decisions.
Core inflation at 2.9% is still meaningfully above the Fed's 2% target, and the labor market added 172k jobs last month—suggesting wage pressures haven't broken yet. If the Iran conflict extends beyond Q2, energy could bleed into services faster than the article acknowledges.
"Sticky energy-driven inflation plus geopolitical escalation risks will keep the Fed from easing, pressuring equities more than the soft core reading implies."
The 4.2% May CPI print, with energy up 3.9% MoM and spilling into airline fares (+26.7% YoY) and food, shows the Iran conflict's second-round effects are broadening faster than the soft 0.2% core monthly gain suggests. The Fed under Warsh now faces a resilient labor market (172k jobs) and consumer expectations still elevated through 2026, tilting policy toward holding or hiking rather than cuts Trump demands. Weakening real wages and eroding pricing power point to slower growth ahead, while data-center chip demand and drought add non-transitory pressures. Markets correctly dipped 0.5% on the S&P 500 as rate-hike odds for December rose.
If the conflict de-escalates quickly, energy prices could drop sharply as Trump predicts, keeping core inflation contained and allowing the Fed to stay on hold without further damage to growth.
"The data-center-driven inflation thesis is fragile; competitive cloud pricing can cap services inflation, making over-tightening a real policy risk rather than a sure path to higher rates."
Challenging Gemini: the 'data center boom' as a perpetual inflation floor presupposes hyperscaler capex stays hot and cloud pricing hardens. In practice, fierce cloud competition and contract renegotiations can cap price gains, limiting services-inflation spillovers. If energy remains volatile but shelter/rent stay the main sticky, the Fed might pull back sooner than markets imply. The bigger risk is policy over-tightening into a weakening economy, not just persisting inflation.
"Fiscal sustainability constraints prevent the Fed from aggressively hiking rates regardless of CPI prints."
Gemini’s focus on a December hike ignores the fiscal reality: the Treasury’s interest expense burden is unsustainable at higher rates. Even if inflation remains sticky, the Fed is effectively constrained by the need to facilitate government debt rollovers. The real risk isn't just a hawkish pivot, but a 'fiscal dominance' scenario where the Fed is forced to tolerate higher inflation to debase the debt, rendering traditional rate-hike models for S&P 500 valuation obsolete.
"Fiscal dominance is a 2025 tail risk, not a present constraint on Fed policy; demand destruction is the more immediate inflation brake."
Gemini's fiscal dominance argument is theoretically sound but empirically premature. The Fed has resisted fiscal pressure before (2022–23); Treasury's debt service at 3.3% of GDP remains manageable versus 1990s levels. More immediate: if real wages stay negative and core services inflation (ex-shelter) actually decelerates, the Fed has room to hold without capitulating to fiscal concerns. The real constraint is consumer demand destruction, not Treasury rollover risk—yet.
"BLS credibility risk extends the Fed's hold beyond what demand destruction alone implies."
Claude rightly prioritizes demand destruction from negative real wages, but the BLS leadership shift creates a measurement risk that could mask sticky services inflation. If reported core prints lose credibility, the Fed stays on hold longer than fiscal or wage signals suggest, extending pressure on growth stocks even as energy volatility fades. This statistical uncertainty links directly to the resilient 172k jobs print without requiring fiscal dominance.
The panel consensus is that inflation is likely to persist beyond initial expectations, with core services inflation and shelter costs potentially remaining sticky. This could lead to higher-for-longer interest rates, putting pressure on rate-sensitive stocks. However, there are differing views on the Fed's response and the risk of policy over-tightening.
None explicitly stated.
Demand destruction due to negative real wages and the potential for policy over-tightening into a weakening economy.