Inflation is back above 4% for the first time since 2023—but Kevin Warsh might catch a break

Consumer prices rose 0.5% in May, the Bureau of Labor Statistics reported Wednesday, lifting annual inflation to 4.2% from 3.8%—the first 4%-handle increase in three years.

But the heat was mostly contained in energy: It accounted for more than 60% of the monthly damage, with gasoline jumping 7% from April and 40.5% over the year as the war in Iran chokes the Strait of Hormuz and drives oil prices higher.

If you strip out food and energy from the “core” CPI, it rose just 0.2% in May and 2.9% over the year, softer than expected and suggesting that the spillover was relatively limited. That’s the number the Fed actually watches, and it isn’t flashing the overheating signs that could force its hand.

Overheating was the fear over this print, not just from the Iran war but from AI. Chicago Fed President Austan Goolsbee has warned that the AI boom could heat the economy before it delivers any productivity gains, as the costs of the build-out grow. China’s economy showed a version of this overnight, with wholesale inflation near a four-year high on AI-driven demand. But May’s consumer data doesn’t show this yet; the hot part is still the oil shock.

Yet an inflation rate above 4% makes a rate cut harder for new Fed Chair Kevin Warsh to jus...