10:59 AM EDT, 06/10/2026 (MT Newswires) -- US annual inflation accelerated to the highest in about three years, fueling expectations that the Federal Reserve will keep interest rates on hold for some time.

The consumer price index increased 4.2% last month from a year earlier, accelerating from the 3.8% rise in April and marking the fastest pace of price growth since April 2023, Bureau of Labor Statistics data showed Wednesday. The latest print matched the average forecast in a Bloomberg-compiled survey.

Core inflation, which excludes volatile food and energy items, accelerated for a third consecutive month to an annual rate of 2.9%, also as Wall Street expected. That's the highest print since September.

"The effects of the Iran war continued to surface in May, with headline inflation climbing to a three-year high," Thomas Feltmate, senior economist at TD Economics, said in a report. "While still relatively contained, cost pressures are starting to be felt beyond just higher prices at the pump, with airfares up over 8% since the start of the war, which is coming atop lingering tariff price effects and still elevated services (ex. shelter) inflation."

Energy prices rose about 24% annually in May, with gasoline surging 41%, the fastest rise since July 2022. Food index growth eased to 3.1% in May from 3.2% the month prior.

"We see core measures of inflation remaining elevated through year-end before drifting lower in (the first half of 2027), supporting the case for an extended Fed pause," Feltmate said.

Markets widely expect the US central bank's Federal Open Market Committee to leave interest rates unchanged at next week's monetary policy meeting, which would mark its fourth straight pause, according to the CME FedWatch tool.

Monthly headline inflation slowed to a three-month low of 0.5% in May, as expected, following a 0.6% gain in April. Core inflation eased to 0.2% from 0.4%, while the Street projected a 0.3% rise.

"With gas prices down sharply so far in June, May could mark the peak for headline CPI, although inflation will be slow to decline, keeping the Fed on prolonged hold for most of this year," Nancy Vanden Houten, lead US economist at Oxford Economics, said in comments e-mailed to MT Newswires. "Core CPI has probably peaked as well but will also remain elevated as energy-driven cost increases in core components continue to push up the index, even as the impact of tariffs recedes and housing inflation readings become more moderate."

Last week, Cleveland Fed President Beth Hammack said the US central bank may need to raise interest rates should inflationary pressures persist. Hammack was one of the three Federal Open Market Committee voters that supported its April policy decision, but opposed including an easing bias in the statement.

"The FOMC is very likely to telegraph a 'higher for longer' monetary policy stance at next week's interest rate announcement, by dropping its easing bias and perhaps showing some upward drift in the median fed funds forecast, which currently shows 25 (basis points) of easing this year and next," TD's Feltmate said.