Inflation Roars as Iran War Jacks Up Energy Prices

President Trump today signed into law Republicans' $70 billion bill to fund immigration enforcement agencies through fiscal year 2029. At an Oval Office signing ceremony, Trump said the U.S. would be striking Iran again, even as he has continued to promise that a peace deal is close at hand. "We hit 'em hard yesterday, and we're gonna hit 'em again hard today," Trump said, adding, "we'll see what happens with the deal. We're really close to a deal, but they keep tapping us along. They keep playing us for suckers."

U.S. Central Command later said on social media that the military had launched strikes against multiple targets in Iran. Here's what else is happening.

Inflation Roars as Iran War Jacks Up Energy Prices

U.S. inflation accelerated in May for the third month in a row, as the Consumer Price Index rose 4.2% from a year earlier, the Bureau of Labor Statistics reported Wednesday. On a monthly basis, the index rose 0.5%.

A spike in energy prices prompted by the war with Iran was the largest factor in the inflationary surge, contributing 60% of the overall increase while helping push the inflation rate over 4% for the first time in more than three years and well above the 2.4% rate recorded in January.

The energy price index rose 3.9% in May on a monthly basis, following increases of 3.8% in April and 10.9% in March. The energy index rose 23.5% year-over-year. Within the energy index, gasoline prices rose 40.5% compared with a year ago, while fuel oil rose 58.9%. Electricity prices rose a more modest but still painful 5.9%.

Other sectors seeing significant price increases include apparel (up 4.8% year-over-year), transportation services (up 4.1%) and medical care services (up 3.6%).

The core inflation rate, which ignores volatile food and fuel prices, showed a significantly smaller increase, rising 2.9% on an annual basis and just 0.2% on a monthly basis.

Trump says it's "great": Asked by a reporter in the Oval Office if he was concerned about the inflation numbers, Trump said he approved. "No, I love it. The numbers were great," he said. "I love the inflation."

Trump started to explain his surprising and confusing statement but then veered toward a discussion of oil and Iran. "Because as soon as this war is over, you know I can say it now ... you know we've been taking out millions of barrels of oil," he said, apparently referring to the Persian Gulf, where he indicated that the United States was secretly guiding oil tankers past the Iranian blockade.

Trump again predicted that inflation would fall sharply once the war with Iran is over. "When the war is over? It's coming down. It's going to come down like a rock," he said, before returning to the situation in the Gulf. "And again, we're taking out millions, which, I'm just announcing today for the first time, but we've been taking out millions of barrels of oil. Millions. Every night."

On his social media platform later in the day, Trump said that he had directed the military to undertake a "secret mission"- apparently not so secret - to guide oil tankers through the Strait of Hormuz. "This wildly successful effort is because the UNITED STATES of AMERICA CONTROLS the Strait of Hormuz - NOT Iran," he said. "Their military is defeated, and their economy is lost. It's over for Iran!"

He did not, however, explain why he thinks the current bout of inflation is "great."

Wages suffer: "Inflation is so high that it's erasing all wage gains," said Navy Federal Credit Union Chief Economist Heather Long. Wage growth was 3.4% over the last 12 months, Long noted, well below the 4.2% inflation rate.

"Americans are getting squeezed financially," Long said on X. "This isn't just 'bad vibes' about the economy. There is real pain, especially for middle-class and lower-income households. It's tough because so many basic items are seeing sizable price increases: gas, electricity, food, medical care."

Ben Zipperer of the Economic Policy Institute said the recent rise in inflation has wiped out a year and a half of wage growth, leaving workers with the same wages as in January 2025 on average. And there could be more pain ahead as higher energy prices start rippling through the economy.

"So far, excessive inflation has been limited to energy and airfares," Zipperer wrote. "But as long as the war continues, there is a heightened threat that price increases will spill over to the broader economy, triggering a more permanent increase in the cost of living and further reductions in real earnings."

A silver lining: Economists who are worried about higher energy prices causing problems in other sectors were relieved to see the price surge remain largely contained - at least for now.

"[4.2%] is still too hot for comfort, but the more important news was that the increase was concentrated mainly in energy, especially gasoline, rather than spreading widely across the economy," economist Sung Won Sohn of Loyola Marymount University said Wednesday, per CNN.

The relatively modest results for core inflation also provided some hope that the price surge will remain an energy-specific phenomenon. Bloomberg economists Anna Wong and Troy Durie said they think it's likely that headline inflation peaked in May. Still, many analysts warned that the longer the war with Iran lasts, the more likely it will be that inflation spreads out, if it hasn't started to do so already.

EY-Parthenon Chief Economist Gregory Daco warned about the risks ahead. "The longer the Middle East conflict persists, the broader and more persistent inflationary pressures are likely to become," he said in a research note, per Bloomberg. "Higher fertilizer prices will place upward pressure on food inflation, while rising transportation and production costs gradually pass through to a wider range of goods and services."

Quotes of the Day

"It's clear now that Congress shouldn't delay any longer. Several of us have been coming together to talk about how we can strengthen Social Security for current and future generations of retirees. We say to our colleagues: join us in doing what we were elected to do - legislate on hard issues and protect this lifeline program for our kids and grandkids."

• Sens. Dick Durbin, Bill Cassidy, Tom Kaine and Thom Tillis, from a joint statement discussing the future of Social Security.

The message from the bipartisan group arrives in the same week that the trustees of the Social Security program released their annual report. The latest projections show that retirees could get hit with a 22% cut in benefits starting in 2032 if Congress fails to take steps to shore up the program's finances.

The lawmakers said it's well past time to act. "Congress has no shortage of ideas, we just need to actually debate them and vote," they said.

House Ways and Means Committee Chairman Jason Smith also spoke up this week about the need to fix the retirement program. "Congress needs to get their act together to address Social Security and the insolvency that's coming, instead of poking blame at other people whenever it is our duty and our responsibility," Smith said at a hearing with Social Security Administration Commissioner Frank Bisignano.

"We did not find evidence of violations of administrative or criminal law that would constitute fraud."

• The Treasury Department's Office of Inspector General, in a new report about a 10-month review of the federal government's payment systems. In fiscal year 2025, the systems "disbursed nearly 1.3 billion payments on behalf of more than 250 federal entities, totaling over $6 trillion, accounting for more than 88 percent of all federal payments that fiscal year."

The report found that the payment systems' controls are "generally adequate" but said that weaknesses and deficiencies exist that need to be addressed. As Politico's Michael Stratford notes, the reports' findings "undercut Elon Musk's allegations last year that his DOGE team had found significant irregularities in the government's payment systems and that Treasury employees had knowingly approved payments to fraudulent organizations and terrorist groups."

Number of the Day: $20.1 Trillion

The combined wealth of the world's billionaires now tops $20 trillion, according to calculations by French economist Gabriel Zucman reported in The New York Times. The total is up from $4.5 trillion 15 years ago, and from $14.2 trillion as of 2024. It's also equal to almost a fifth of the annual output of the whole world, the Times's Patricia Cohen notes.

The remarkable rise in billionaire wealth reflects global trends, Cohen writes. Those include the dominance of big tech companies leading the AI revolution, a smaller share of economic gains going to workers and deepening inequality between haves and have-nots.

Cohen also points to another factor driving the fortunes of billionaires:

"Their rising wealth, a 40 percent increase in just two years, has coincided with significant changes to U.S. tax laws over the last decade that largely benefited the country's richest families and stockholders and led to an increase in their political influence. ... The reduction in taxes owed by corporations and the wealthy increases the tax burden on workers, who pay both income and payroll taxes - two types of tax that barely scratch billionaire wealth. It also reduces the public revenue available to pay for health, education, defense, infrastructure and other public benefits at a time when governments are in deep debt."

Read more at The New York Times.

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Fiscal News Roundup

• Trump Signs Bill Giving Nearly $70B to His Immigration Enforcement Agenda Through End of His Term – Associated Press
• 'Anti-Weaponization' Fund Challengers Question Its Demise – Roll Call
• Judge Rejects Watchdog's Bid to Block Trump Administration's $1.8B 'Anti-Weaponization' Fund – Associated Press
• Inflation Jumps to 4.2%, the Highest Since Early 2023 – NBC News
• Trump Has a New, Surprising Take on the Higher Cost of Living: 'I Love the Inflation' – Associated Press
• Oil Prices Set to Keep Rising Even After Iran Conflict Ends, Shell Boss Says – Wall Street Journal
• 'The Die Has Been Cast': Trump Allies Fear It's Too Late to Reverse Economic Woes – Politico
• Bond Traders Keep Bets on a Fed Hike in 2026 After CPI Data – Bloomberg
• ICE Mandates Additional Training for New Hires After Backlash – CBS News
• Four Senior Senators Express Alarm, Push for 'Hard' Social Security Votes – The Hill
• Hopes Dim for Renewing Spy Law as Trump Digs In on Bill Pulte – New York Times
• Treasury Watchdog Finds No Evidence Backing Musk's Payment Fraud Claims – Politico
• Trump Law Would Also Direct Voucher Money to Public Schools – New York Times
• Looming Medicaid Cuts Supercharge California's Latest Labor-Industry Fight – KFF Health News
• Want to Skip a 12-Month Line for a U.S. Visa? That'll Be $750 – New York Times

Views and Analysis

• Republicans Just Took ICE Spending Fights Off the Table. It Won't End Shutdown Threats – Jennifer Scholtes and Katherine Tully-McManus, Politico
• Inflation Gets Even Worse – Washington Post Editorial Board
• An Inflation Silver Lining – Wall Street Journal Editorial Board
• Here Are the Key Takeaways From the US CPI Report for May – Enda Curran, Bloomberg
• Kevin Warsh Catches an Inflation Break at the Fed – Robert Burgess, Bloomberg
• The Fed Might Yet Again Take the Punch Bowl Away – Richard Bernstein, Financial Times
• Are We Stuck With Trump's Outrageous IRS Immunity Deal? – Elie Honig, New York
• Only AI Can Save Social Security and Medicare – James Freeman, Wall Street Journal
• Rich Americans Should Welcome Higher Capital-Gains Taxes – Nicolas S. Rohatyn, Bloomberg
• What if Everything We Know About the Economy Is Dead Wrong? – Monica Potts, New Republic
• Trump's Latest Big Tax Increase – Wall Street Journal Editorial Board
• What Happened to the Great Rebirth of American Manufacturing? – Brooke Masters, Financial Times
• The ICE Occupation of Minneapolis Is Still Wreaking Economic Carnage – Bryce Covert, American Prospect
• Trump's Assaults on Scientific Research Just Got Worse – Melissa L. Finucane, New York Times
• The White House's Top Science Goal Is Ignorance – Mark Gongloff, Bloomberg