Consumer prices in the United States rose 4.2% year-over-year in May, representing the highest level since April 2023 and a significant shift from April’s 3.8%. This unexpectedly sharp jump stripped investors in risky assets of their last remnants of optimism. Hopes for imminent monetary policy easing have definitively faded, and analysts warn that bitcoin and gold now face further difficult weeks full of selling pressure.
You might like: Euro stablecoins dominate the non-dollar market
Oil shock from Middle East behind price surge
The main cause of the unfavorable development in the consumer price index is expensive energy, particularly oil, which increased 7% during May and posted a year-over-year gain of 40.5%. This energy sector thus accounted for more than 60% of the entire monthly price increase in the USA. The root cause lies in the Middle East, where the military conflict with Iran and the de facto closure of the strategic Strait of Hormuz have driven oil prices up by more than 50% since January of this year.
The only relatively good news in the U.S. Bureau of Labor Statistics data is hidden below the surface in the form of core inflation, which excludes volatile food and energy prices. The core component rose by only 0.2% for the month instead of the expected 0.3% and reached 2.9% year-over-year. Underlying price pressures in the economy thus remain relatively subdued, and the overall price increases are primarily driven by the current oil shock.
Read also: Monero – The cryptocurrency that protects your financial privacy
Fed keeps rates high, increase also in play
For the American central bank, however, lower core inflation is only weak consolation, because overall inflation continues to hold more than two percentage points above its established 2% target. The consumer price index is among the key inputs for the Fed when deciding on monetary policy, and markets therefore immediately scrapped all hopes for near-term rate cuts. The Fed has held the base interest rate in the 3.50 to 3.75% range unchanged since December 2025.
Futures contracts on the CME exchange currently assign an overwhelming 98.4% probability to the scenario that at the upcoming monetary policy meeting on June 17, nothing will happen to rates at all. Some analysts have even begun talking about a possible interest rate increase during this year due to persistent inflationary pressures. This is a warning signal for financial markets, as the prospect of even more expensive money typically does not bode well for risky assets including cryptocurrencies.
Don’t miss: MadisonSix
