US inflation hit 4.2% in May, the highest reading since April 2023, and the third straight month of acceleration. The driver is the US-Israeli war with Iran. The closure of the Strait of Hormuz has disrupted Middle East oil supplies, and energy alone accounted for over 60% of the monthly CPI increase.

This episode breaks down the May CPI report and what's behind the number. Energy prices are up 23.5% year over year. Gasoline is up 40.5%. Fuel oil is up 58.9%. Shelter costs accelerated again to 3.4% and food rose 3.1%. Core inflation (the Fed's preferred measure, which strips out food and energy) climbed to 2.9%, a new high since September 2025, but the monthly core number actually came in below forecasts, which is the one piece of good news in the report.

The Fed meets June 17. Markets expect a hold, but the conversation has shifted. Rate cuts that were on the table in January are off it now, and some analysts are starting to talk about hikes later this year if the energy shock spreads. The pace of the past three months is the fastest since spring 2022, when inflation was still climbing toward its 9% peak.

The pain isn't evenly distributed. Real wages have fallen for two months in a row. Gas, food, electricity, and medical care are all running above 3%, which is exactly the basket of things households can't substitute away from. Brookings modeling suggests that even in the most optimistic scenario, a Hormuz closure lasting one quarter, US inflation ends 2026 about 0.6 points higher than it would have otherwise.

We cover what the energy shock means for AI infrastructure costs, why a 40% gas spike doesn't show up evenly across the economy, what the Fed actually does with a war-driven inflation print, and whether May represents a 2026 peak or the start of something longer.

May CPI, US inflation 2026, Iran war inflation, gas prices, Strait of Hormuz, Federal Reserve, interest rates, energy shock, real wages, core CPI, FOMC June 2026.