Inflation heats up again in May, strengthening the case for a cautious Fed stance.

U.S. consumer prices rose 4.2% year-over-year in May, up from 3.8% in April and in line with market expectations. Core inflation, which excludes the most volatile food and energy components, accelerated to 2.9% from 2.8% in the previous month, also matching economists’ forecasts.

The latest data mark a third consecutive monthly increase in inflation and highlight a renewed acceleration in price pressures. May recorded the strongest annual inflation reading and the largest monthly gain in three years, driven largely by higher energy costs amid disruptions to global supply chains caused by escalating conflict in the Middle East.

With inflation running at more than twice the Federal Reserve’s 2% target, policymakers are likely to face growing pressure to maintain a restrictive monetary policy stance. While most economists continue to expect the Fed to leave interest rates unchanged until early 2027, financial markets have fully priced in a 25-basis-point rate increase by year-end.

Persistently elevated inflation is also expected to place additional strain on U.S. households, many of which are already grappling with higher living costs. Compounding the challenge, consumer prices have outpaced wage growth for a second consecutive month, raising concerns about the impact on household spending and broader economic activity.

The resurgence in inflation could also present political challenges for President Trump’s administration. Containing inflation was a central pledge of Trump’s election campaign, and the recent increase in the cost of living may complicate efforts to demonstrate progress on that front. The issue is likely to gain further prominence ahead of November’s midterm elections, where the administration will seek to maintain its congressional majority.