BIRMINGHAM, Ala. (WBRC) – New data released by the Bureau of Labor Statistics shows inflation is up 4.2%, the highest in over three years.
Energy costs are the main driver of inflation, and the ripple effect is impacting everything consumers buy, experts say.
The May Consumer Price Index (CPI) report shows inflation is at its highest point in over three years. The biggest reason is energy.
The ongoing conflict between the U.S. and Iran has restricted oil flow through the Strait of Hormuz, a critical global shipping channel.
“Energy commodities alone, year over year, those prices went up 40.6,” said Dr. Ben Meadows, UAB assistant economics professor. “Gasoline specifically was 40.5 and fuel oil was up 58.9%. Everything we consume in the economy touches gasoline. Those companies typically are not going to eat those costs. They’re going to pass them along to consumers.”
The Federal Reserve is shooting for a 2% inflation rate.
“If you were looking at the report that just came out, we’re over double where we want to be,” Meadows said. “This is not where we want to be.”
Meadows said even though 4.2% is not good, the rate is still nowhere near the 9.1% peak seen in 2022 after COVID.
But that does not mean relief is coming soon.
“Even if the Strait of Hormuz completely goes back to normal tomorrow, there’s the backlog that’s going to take a while to clear,” Meadows said. “For your average American consumer, there’s going to be some durability of these price levels for a little bit.”
Meadows said consumers will likely start adapting by shifting grocery habits, carpooling if they can or rethinking big purchases, maybe even switching to an electric vehicle.
Meadows pointed out that unemployment is still low and even though a dollar buys less, people are still spending. While there are challenges, he does not want people to panic.
“I want to be just very, very clear, almost rudely blunt, this is just inflation,” Meadows said. “That’s not the same thing as a recession.”
Meadows said right now, sitting and watching is really the only option, and that the next CPI report in mid-July will be an early indicator of whether these prices are starting to level off.
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